Interview Question: Why Trading?

One the most common questions you'll be asked in a sales and trading interview is whether you would be more interested in a sales or a trading role.

Whenever a candidate says they'd be more interested in trading, you should expect the follow-up "Why trading?" to be asked.

This is partly because the vast majority of people who come into sales and trading say that they want to do trading yet don't understand how sell-side trading actually works.

In this post we'll be covering what a good answer to this question is and go over some of the things that you absolutely should not incorporate into your answer.

How to Answer the Question "Why Trading?"

Fundamentally there are three things that your answer should touch on. You can, of course, add anything you like to your answer. However, whatever you do you should solidly cover these three aspects in your answer (think of these as building blocks to your own answer).

Show You Understand the Trader's Role

Many have a rather cliched view of what trading actually is within the context of a sell-side bank (like Goldman or JPM or Morgan Stanley). 

The reality is that the role of a trader is fundamentally to provide liquidity to clients, by making markets when they ask, and to manage the risk that the client's have dumped onto the trader's book.

The role of a trader on any desk is not to make speculative bets or to act in an independent, lone-wolf style. That is not what regulations allow and not how traders are evaluated internally by the bank. 

So you should make it clear in your answer that you enjoy thinking about how to manage risk, how to position a book of risk, and enjoy occasionally talking to clients (but are perhaps less interested in talking to them as much as sales people do). 

Show You Understand the Attributes a Sell-Side Trader

Once again, what you say here is as important as what you don't say. Traders on the sell-side are not operating entirely under their own volition. Traders have strict risk-limitations, can't just ignore clients when they ask to do a trade that a trader doesn't like, and must be a confident and comfortable communicator with other traders, sales people, and occasionally clients. 

So a good answer should incorporate the fact, as mentioned above, that you aren't anti-social, but are perhaps not as social as a sales person would be. Further, you can mention that you enjoy thinking about how to limit downside risk, protect capital, and generally have a more analytical mindset. 

If you have any particular skills in coding, or have taken a lot of courses in stats or applied math, then you can bring up the fact that you'd like to try to find a way to use these on the desk (but don't want to be in a purely quantitative role).

While most traders - outside of a few roles like in equity derivatives trading - won't be doing much mathematics or coding on the desk it's still helpful to bring this up (as you could be doing side projects analyzing data as an analyst to help the desk). 

Show You Understand the Role of a Junior Trader

Picking up from what was just mentioned, it's important to make it clear that you understand that on day one you won't be handed a book to manage!

Instead, you want to make it clear you think you would excel in a junior trader capacity. Things that a junior trader will do will vary depending on the desk, but it will include things like doing side projects, creating market commentary, handling phone calls, and being an in-between with sales.

You should make it clear that you're a go-getter, enjoy thinking and writing about markets, and are excited to be involved in trading even if you aren't directly managing any risk in your first year or two.

Things Not to Include in Your Answer

Without a doubt there are a few different things that you should be mindful of not including in your answer.

First, you should never talk about how you like doing technical analysis of stocks, or doing fundamental valuation of stocks, or anything like that when asked why you're interested in trading.

The reason why is this is not really what traders do on the sell-side and most products traded on the sell-side aren't equities! If you're interested in doing fundamental valuations of stocks you should be in equity research or a long-short hedge fund, not in sell-side trading.

Second, you should avoid talking about how you've been trading in your personal account for years. Once again, most traders are not going to be in equities and those that are in equities will be primarily dealing with more esoteric areas (like Delta 1 or equity derivatives).

Also, the role of a cash equities trader is not to just buy equities they like it's to enable clients to express their views. If anyone on the trading floor has actual views on equities, it will be sales people who are talking to clients about their planned trades and pitching a few interesting ideas to them potentially. 

Third, you want to avoid saying that the reason why you're interested in trading is that you're very introverted. The reality is that while high frequency traders, quants, or structurers can be highly introverted, a sell-side trader will need to be continually communicating with other traders on the desk, sales people, and sometimes clients as well. 

The role of a sell-side trader is less social than a sales person, undoubtedly. But that doesn't mean it's entirely devoid of any social aspect. Communication is critical. 

Conclusion

There are a few behavioral questions you'll face in a sales and trading interview that are absolutely essential to get right. The question, "Why trading?" is absolutely one of them. 

While it can appear to be a harmless question to answer, with no real right or wrong answer, the reality is that you should be touching on the three things laid out above and not say anything I listed in the section above. 

Most of a sales and trading interview boils down to showing your contextual understanding. Meaning, can you demonstrate that you actually know what it is that traders, sales traders, and sales people do (or do you think it's all like Wolf of Wall Street, which is obviously not the case).

I hope this has been helpful in helping you craft your own answer to this question. As always, be sure to let me know if you have any questions.