Sales and Trading Internship Interview Questions
Sales and trading internships are among the best to have during your undergraduate career. Not only will they open up the world of sales and trading to you - showing you how a trading floor really operates - they will also carry enough "prestige" to help you pivot to other roles should you want to try something new (like investment banking or equity research).
For example, while I was at Goldman during my summer analyst stint around 10% of the intern class left to go to investment banking (at Goldman and elsewhere) after realizing that sales and trading wasn't quite right for them.
What To Expect in S&T Internship Interviews
Part of the reason why this site was created is that much of the information out there on sales and trading is terribly outdated or non-existent.
Some seem to think that you can walk into an interview - not knowing what something like rates trading refers to - and walk out with an offer.
The Reality of Sales and Trading Recruiting in 2021
In reality, the way that sales and trading has evolved over the past five years is that almost everyone who starts full-time will come through the sales and trading internship program of the bank. Alternatively, the remaining full-time hires will likely have completed an S&T internship at a competing bank.
As a result, when S&T folks are interviewing internship candidates they take the decision of who they pick incredibly seriously because it is very likely they will be back full-time (return offers are given out to 75-95% of the interns depending on what bank we're referring to).
Further, unlike in investment banking where everyone is a bit of a cog in the pitch book machine, in sales and trading individual talent, personality traits, and preferences plays a large role in success and failure.
This is part of the reason why this site has harped so much on making sure you understand what the major desks within a bank are and decide early on which ones most interest you. Because the reality is some will excel in rates trading while failing in FX sales, for example. You need to be self-reliant and figure out the best place on the trading floor to land.
Types of Interview Questions
Because of just how diverse a trading floor is, and the fact that your interviewers may come from any desk on the trading floor, sales and trading internship interviews require significant preparation across five question types.
Behavioral questions are the interview questions you are likely most familiar with. However, these are quite a bit different in a sales and trading context than you may have seen in the traditional investment banking guides.
Many of the most common behavioral questions have a specific S&T slant. Meaning you are going to be asked specifically about what personality attributes you have that make you a good fit for certain kinds of desks.
Frequently I get poked fun at for talking about contextual understanding and how essential that is to succeeding in interviews. However, understanding what desks do, why they do what they do, and what kinds of people are drawn to that desk is essential to making sure you end up in the right spot and stand out in an interview.
This is particularly true for firms like Morgan Stanley and J.P. Morgan where you are going to be placed on a desk for the entire internship, not rotated around like you would be at Goldman Sachs, for example.
Market-based questions revolve around understanding the mechanics of various markets and knowing where they are currently trading.
In the prep guide we go over these areas. You should be thinking not just of major equity indices, but also of high yield credit, investment grade credit, treasuries, commodities, and FX markets.
One thing that is always highly impressive is for an internship candidate to understand that the vast majority of those working in sales and trading are utterly disconnected from equity markets and follow wholly distinct markets (which, in my view, are much more interesting than equity markets!).
When aspiring interns hear the phrase "investment-based questions" they immediately think about stock pitches.
While you should prepare a brief stock pitch - both long and short - it is actually reasonably rare that it comes up in an interview context. Personally, I wasn't asked it at J.P. Morgan or Goldman Sachs (which is good, because I didn't have one prepared!).
The reality is, no one is really pitching stocks on a trading floor. Thinking that they are is a bit of a false assumption that many have.
Like was mentioned above, the vast majority of those on the trading floor are working in areas utterly unrelated to equity markets. Further, those working in equity markets are not focused on fundamental analysis - building DCFs and spreading comps, etc. - but rather working in some derivative-based product (like Delta 1, convertible bonds, or pure equity derivatives).
The investment-based questions you should prepare for are focused primarily on understanding, and having a view of, areas that are a bit more esoteric for most college students like rates and credit.
Questions for the Interviewer
This is the most underrated form of question and for any internship interview likely one of the most important.
At the end of all of your interviews you will have five minutes or so to ask your interviewer some questions.
Many - to my perpetual chagrin - ask questions revolving around when they'll hear back about an offer or how the individual has enjoyed their time at the firm. These questions add absolutely nothing and will probably leave a poor impression - or at best a neutral impression - on the interviewer.
What you want to ask are questions that draw out an opinion from your interviewer; questions that make them think, that are unique, and that leave a favorable final impression on them. This is why I've dedicated an entire section of the guides to just these kinds of questions.
The final type of internship interview question to expect revolves around understanding the mechanics of specific products.
You will most likely get asked a few questions around what exactly certain products are (whether that be interest rate swaps, CLOs, etc.). This is especially true if you expressed an interest in a desk that trades these products.
No one is expecting you to be an expert. However, if you can shine when answering these questions (even getting them largely right, not exactly right) you immediately will vault yourself into the top few percent of interviewees.
Sales and Trading Internship Questions
Below are some example questions that fall into the types listed above. Remember that your interviews will be just 20-30 minutes in length so you want to keep your answers to 2-3 minutes at absolute most.
Question 1: What has been behind the rapid growth in FX trading over the past thirty years? Why can't everyone keep their currency in their home country's currency?
There have been three major trends that have led to the explosion of FX trading over the past three decades:
- Globalization and the rise of multi-national firms that need to continually hedge and swap currency (e.g. a US company that sells into Europe may earn money in Euros, but want to continually swap EUR back into USD)
- Technological changes have led to the FX market being more accessible to a wider swath of both corporations and people; it is now easier than ever to have your cash in the currency you want it in
- Over the past 30 years most currencies around the world have moved from being pegged to the dollar to being free-floating, allowing for there to be more daily movement in prices; this volatility leads clients to need to think about what form of currency they want to be holding
Question 2: What are Fed Funds?
Fed Funds – for money market purposes – are the excess reserves depository institutions hold at the Fed. The Fed has mandates surrounding the amount of reserves necessary to be held and so those with excess can lend to other depository institutions who are temporarily in need (on an unsecured basis).
These loans are unsecured and have an incredibly low interest rate, which is called the Fed Funds (FF) rate. This Fed Funds rate is generally the upper-bound of the target interest rate set by the Fed that you’ll hear often mentioned in the financial press – currently it stands at a range of 0-0.25% (annualized).
Question 3: What's market making and is that what we largely do here?
This is a great interview question because it cuts to the heart of what sales and trading is all about.
Prior to the Great Financial Crisis (GFC) most major investment banks had distinct desks for market making and proprietary trading.
Marketing making desks, as the name would imply, revolve around a trader holding a book of inventory containing a number of securities that he or she deals with (for instance, maybe they trade the belly of the yield curve, meaning treasuries between five and ten years in maturity).
Then clients come to a sales person on the desk and ask for the trader to make them a market (a bid ask spread) on a certain security. The trader looks at the market, their inventory, etc. and then makes that market.
Assuming the client agrees, the transaction is completed and market makers will theoretically try to hedge out most or all of their underlying exposure and just clip the spread. Meaning, in laymen terms, locking in a small profit - almost like a fee - but taking no directional risk.
In reality market making is substantially more complicated. Not only is it not always possible to hedge out your exposure, sometimes traders will want to "tilt their book" in a certain direction in order to benefit from their inventory moving in a positive direction with the market and meet future client demand for certain kinds of securities that they hold.
Proprietary trading desks operated in a substantially different manner. Limited or no clients were being served. Instead, traders simply bought and sold their securities when they saw fit in order to make a profit.
This is distinct from market making where obviously a trader always needs to keep some level of inventory in order to service a client. If a client comes to a trader wanting to do a trade, and the trader simply says they have no inventory so won't do it, then that obviously is a bad look for the trader and the bank overall. If a trader really doesn't want to do a trade they'll simply give the client bad pricing and home some other bank gave better pricing.
With the advent of post-crisis regulation, proprietary trading desks are largely a thing of the past at major investment banks (with the exception of some quasi-prop desks in areas like FX).
In an interview you should make it clear that you understand that the role of a sales and trading professional in 2021 is that of a market maker who is constantly looking to minimize risk, serve clients, and position their book in the best possible way given the market conditions (while still serving the needs of clients).
Question 4: In an equity derivatives context, what really are the greeks?
Partial derivatives of the option pricing model. Delta, theta, vega, and rho. This means that they measure the change in the calculated option value for a given change in one of the inputs to the model, all the other inputs remaining constant.
Question 5: What are the major divisions or desks within sales and trading?
This is another great question to ask early in an interview to get a feel for if the interviewee actually knows how a trading floor is set up. You would be surprised how many look blankly at you when this is asked.
Generally speaking, you should do your homework on the bank your interviewing with as every bank will call their divisions within sales and trading slightly different things.
However, you can think about it as there being two broad categories: FICC (fixed income, currencies, and commodities) and equities.
Within fixed income you'll have desks like:
- Treasuries / TIPS
- Money Markets
- Mortgage-backed securities
- Investment grade credit
- High yield credit
- Distressed credit
In currencies you'll have desks that focus on major currencies (G10) and emerging markets. Normally these desks will have traders and sales people within them who deal for swaps and derivatives (instead of them being on entirely separate desks).
Within commodities desk structures vary widely across Wall Street, however, generally speaking, you'll have folks dedicated to physical oil, power, metals, and potentially agriculture.
Within equities you will likewise have a diversity of desks, but you can think about it as: equity derivatives, cash equities, Delta 1, and convertible bonds. Convertible bonds are normally traded within the equities division due to the fact converts have call option dynamics.
If you can find a more thorough listing of the exact naming conventions used by the bank you're interviewing with then that's fantastic. However, you really just need to know the kinds of products traded (the specific names of the desks, or how exactly they're delineated, is much less important).
With the limited number of sales and trading internship positions available at the major investment banks, you need to come in prepared.
Fortunately, you can reliably break down questions into the five types listed above and get up to speed quite quickly on the questions you need to have answers for.
The main reason behind creating the Sales and Trading Guide is no one has ever taken the time and effort to try to give a comprehensive, but digestible, overview of sales and trading.
That's what I set out to do and it has been incredibly rewarding to see dozens of folks land at some of the best banks as a result.
Be sure to check that you and all the other posts we've put together here. Good luck and happy preparing!