Top 19 Sales and Trading Interview Questions and Answers
Sales and trading interview questions can be some of the toughest in all of finance. The reason being is that there is no division within major investment banks that is more diverse in what they do than in sales and trading.
Within any given sales and trading division you'll have folks who focus on equity derivatives, mortgage backed securities, interest rate swaps, distressed debt, among dozens of other products.
Note: Each "product" or asset class will normally have a dedicated desk that will contain sales people, traders, and potentially others (including salestraders, quants, and structurers).
The issue with sales and trading is that in a superday for a summer analyst or full-time role, you'll be interviewing with at least three members of the sales and trading division who could come from any desk and obviously they can't help but judge you based on whether you'd be a good fit for their desk.
What this means practically is that interviewees need to have a broad understanding of what occurs on a trading floor in order to be successful in an interview. In other words, you need contextual understanding.
...No one expects you in an interview to understand how exactly to think about gamma in the context of a complex equity derivatives trade or how to think about how an out-of-court restructuring impacting distressed bonds.
However, having contextual understanding of where those things fit into the broader sales and trading division and what the basics of the major desks are is critically important.
Because of just how little information is out there on sales and trading interviews, I created Sales and Trading Interviews, which contains over 300 sales and trading interview questions and 13-guides (including breakdowns of all the major desks).
If you are at all interested in breaking into sales and trading, this is the definitive guide I wish I had when I first interviewed and started as a summer analyst at Goldman Sachs.
Note: If you're looking to keep up-to-date with what's being talked about the most on sell-side trading desks, I've also started writing a weekly newsletter that walks you through the sell-side research and stories impacting markets. The newsletter is delivered to your inbox each Sunday evening and you'll always be able to read the first part of it completely free. You can read past editions of the newsletter here. It's been a lot of fun to create, so I hope you enjoy reading it!
Now let's review some questions. Also note that at the end of this page I go over some common types of sales and trading interview question along with some general prep advice for your interviews.
Sales and Trading Interview Questions
Below are some links to help you navigate to each of the questions and answers on this page easily. I've tried to pick a diverse selection here to give you an idea of what kinds of questions to expect and prepare for (along with some, like question two and three, that will almost certainly appear in an interview).
- What are treasury futures?
- Why are you interested in sales and trading?
- Is there a particular area of sales and trading that interests you?
- Can you give me an example of a markets-based story you've read recently and why you found it interesting?
- What are some important economic indicators to watch out for?
- If we have a bond trading at 90 with a 10% coupon and it matures next year, then what is the yield to maturity?
- What is repo trading? Where does repo trading fit into the broader trading floor?
- What are credit spreads? What are they really telling you?
- How is a Collateralized Loan Obligation (CLO) structured?
- What do we mean by curve trades in rates trading?
- How does an equity derivatives desk really make money?
- Can you give me a simple example (with numbers) of how delta hedging works?
- What is a long put position in relation to delta, gamma, theta, vega, and rho?
- When would you expect the time value of an option to be highest?
- What assumptions does the Black-Scholes model make that are wrong?
- What are the two kinds of municipal bonds that exist?
- Who buys municipal bonds and why?
- What are mortgage backed securities? How should we think about them?
- What are some reasons why a corporate client - beyond mere speculation - may want to do a FX trade?
Futures allow market participants to take views on future rate movements in an off-balance sheet capacity. There are six futures:
- TU (2-year)
- FV (5-year)
- TY (10-year)
- TN (10-year, ultra-long)
- US (30-year)
- AUL (30-year, ultra-long)
Treasury futures are used routinely in hedging and are incredibly liquid just like the benchmark treasuries themselves are. What this means practically, is that a rates trader will have a large book of inventory. Then a client comes in and wants to buy $100M of 10-year Notes. In order to readjust the risk of the trader's book, then may go into the market and buy some offsetting amount (not necessarily $100M worth!) of 10-year futures.
Here's a screenshot from my Bloomberg Terminal to give you an idea of how futures are presented:
An important contextual note - that is always good to try to convey in an interview - is that market making does not mean that you hold no risk. It doesn't mean that you offset every position you execute for a client or perfectly hedge it in some manner. That's impractical in most asset classes. Rates traders can skew their books - partly by using treasury futures - in order to both service anticipated future client demand (maybe lots of clients are anticipated coming to get 30-year bonds) and to profit from anticipated movements of the yield curve.
Ultimately, a future obliges the seller to deliver an underlying security (not a future) sometime in the future (so a 10-year future would require a delivery of a 10-year Note).
There will be a basket of 10-year Notes that can be delivered - as obviously new 10yrs are routinely being issued, so there are a number of potential Notes that could be delivered to the seller of the future - and the specific 10yr Note delivered will ultimately be what is called the cheapest to deliver (CTD).
I should also note that those who buy treasury futures the most are (as you'd expect) those on the rates trading desk. However, you could imagine some other trading desks that are very sensitive to treasury movements buying some for hedging purposes to dampen the volatility of their book (or lock in profits from trades by netting out interest rate exposure).
This is one of those sales and trading interview questions you'll inevitably get (probably multiple times during a superday). Some people try to develop a very personal and unique answer here. I think giving a standard answer, with maybe a bit of your personal touch on it, is far better.
You should not say that you have followed the markets since you were a child or that you love investing on your own. That doesn’t clearly communicate that you know what sales and trading is (it’s not picking stocks on an app). Were you following global macro trends as a teen? Can you break down the economic of a cross-currency basis swap? Are you doing interest rate swaps in your spare time? Obviously, the answer is likely no.
Your answer should clearly communicate you know what sales and trading is (serving clients by making markets for them) and that you are equipped to succeed in it.
You can say that you think sales and trading provides a great opportunity for someone who is intellectually curious and who has a mix of quantitative and qualitative attributes.
In my view, sales and trading provides an an incredible chance to get a front row seat to how a given market – depending on what desk you’re on – operates and to see how clients think about a given market at any given time.
You should also be sure to bring up that you've networked with folks who are currently in sales and trading, at various levels, and that you know it's not all roses. But that you think on a risk-adjusted basis there’s hardly a better job to have out of undergrad than in sales and trading given your personality and interests.
You should also bring up whether or not you are more interested in the sales-side or the trading-side. You should never give a definitive answer here, because that can come across as quite presumptuous given that you haven't even been on the trading floor yet.
However, if you're interested in the sales side it's a great idea to include that here and say that you love the idea of being able to talk to a wide range of clients, help execute what they need to execute, and be constantly thinking about markets and trying to anticipate what clients will do.
Likewise, if you're interested in trading you can say that you're fascinated with how traders position their books in anticipation of client demand, how they think about relative risks, and how they balance serving clients while at the same time ensuring they protect themselves (maybe the reason why a client wants to sell a lot of a particular security is because they know it'll likely be going down!).
Both of these answers demonstrate a deep understanding of the nature of these rolls - without you being asked directly about what these roles entail - which is highly impressive to hear in an interview setting.
Like the last question, this is also an incredibly common interview question. However, it's one that you should be very careful in answering.
The reason being is that you want to avoid coming across as being certain that there is one area of the trading floor that is right for you before you have even begun.
What you want to do is have an idea of a broad area you think you would like to be in, while expressing that you could be entirely wrong and find a different area to be a far better fit.
In other words, you want to show that you've done your homework, while at the same time showing humility that you won't know what area is truly right for you prior to beginning a rotational program or being placed on a desk.
You can say that obviously it’s hard to really have a grasp on what a desk truly does, what the culture is like, etc. before you begin. However, you can bring up that you know the bank you're interviewing with is strong in credit trading, for example, and that you have a particular interest in high yield trading.
You then should get into why you find areas of credit like high yield to be fascinating. For example, by saying because of the more-narrow range of clients who traders in high yield deal with it, the illiquidity compared to many other products on the floor, and the potential events that can rapidly move prices (such as an out-of-court restructuring or actual Chapter 11).
I think it's always a good idea to end this question by saying that you know many people come into the sales and trading with an idea of where they want to be and end up realizing another area is an even better fit so I’m open to exploration.
It's also a good idea to speak to whether or not sales or trading within the particular desk is of most interest. You can re-use the points mentioned in the previous question when speaking to why the sales-side or the trading-side is most appealing to you.
Can you give me an example of a markets-based story you've read recently and why you found it interesting?
Note: Another way you can come up with ideas for how to answer this question is by reading the Market Making newsletter, as each week I'll be breaking down the stories being most discussed on sell-side trading desks and breaking down my favorite sell-side research (from GS, JPM, MS, etc.). So this will (hopefully!) give you a more granular insight and level of understanding than you'd get by just reading the financial press.
Note: Obviously, this is a time-sensitize question which makes it hard for me to give you an up-to-date answer below unless I update this post with a new answer every month. The following answer was created in early 2021, and it may actually be more instructive for you to read now because you can compare and contrast what I wrote in the answer to what actually occurred in 2021. In the answer I mentioned the Fed could be put into a bind and be forced to raise rates much faster than the market was anticipating in early 2021 due to persistently high inflation -- which is what has actually occurred!
Anyway, generally it’s a good idea to focus on discussing a global macro story. For example, discussing what's currently happening in the world of rates will always allow you to tie in a number of different narratives.
For instance, you could speak to how forward looking indicators of the yield curve - such as treasury futures - are indicating a steepening yield curve and mounting inflationary pressures. This puts the Fed - which has said they will keep rates where they are until 2023 - in a bit of a bind. Given their dual mandate, if inflation begins to rise significantly above the target of 2% - which still not being at full employment - does the Fed continue to run the economy hot? Does the market test the Fed?
Goldman Sachs also came out with their 2021 expectations report, which also signaled the likelihood of a steeper yield curve in 2021. Of course, many people have been anticipating steeper yield curves for years now and for the most part it has just got flatter!
You can then tie this all up by saying you wonder if the Fed will start engaging in more targeted yield curve control to try to suppress down any steepening if it does begin to happen. That would seem like a logical next step given how their conventional policy tools have largely been taken as far as they can go.
To get more technical, you can speak to the Fed not rolling over the SLR exemption - which allowed for large banks, like J.P. Morgan - to buy more treasuries than they would otherwise do.
This could also lead to a bit of a bond market tantrum in the future where rising yields leads to selling (as when yields rise, bond prices fall), while the treasury is pumping out new securities to fund ballooning deficits, and banks are unable to absorb as many treasuries as they otherwise would without the SLR exemption. This in turn could lead to the Fed needing to buy more treasuries themselves - which would be a monetization of debt - that could further fuel inflation expectations rising.
There's no need to go as in-depth, but what I'm trying to illustrate in this interview answer is that you don't need to have a defined view. Rather just rambling about a current market story and then elaborating on its implications - whether your interviewer agrees with you or not - is a good way to show off in an acceptable manner.
I would strongly recommend not speaking about a market story surrounding equities as they are far more common. If you insist, it should be around something like the rise of SPACs or elevated options volumes and their implications for volatility (in other words, more esoteric equites concepts).
Talking about more mainstream equity stories like the GameStop, AMC, etc. or whatnot can give an impression - as I've mentioned many times before - of you perhaps not having a grasp on exactly what's important on a trading floor (no one cares about those stories, except for the entertainment value).
Obviously, this will be somewhat desk dependent. For example, if you're dealing with mortgage backed securities, then you'd keep a careful eye on not only rates, but particularly where mortgage rates are. This is due to how prepayments on mortgages affects the valuation of mortgage backed securities and issues stemming from that like convexity.
In general terms, things you should probably keep your eyes on, even if it’s not viewed as being directly relevant to the product you’re involved with, would include things like:
- CPI (in particular, core CPI)
- Changes in 5Y5Y swap rates
- Federal reserve speeches
- Initial jobless claims
- Non-farm payrolls
- Moves in the VIX
- High yield and investment grade index trends (as spreads to treasuries)
- Moves in the 10-year yield
- Moves in Fed Funds
- The S&P 500 level (or whatever equity index is most relevant)
- P/E ratio (and forward P/E ratio)
As you can see from the above list, things directly related to equity markets make up a pretty small sample of what you're really concerned about on the vast majority of trading desks.
Equities are volatile (as they have a claim on the residual value of the firm) and what moves most asset classes are tied to rates (which in turn are driven by economic and political factors).
Some other things you may want to keep an eye on are FX rates (strong or weak dollar) along with any major spending news coming out of Washington (or whatever political capital is most relevant to where you're applying).
Note: Don't worry about needing to know the exact levels for all of these items. It's generally a good idea to know what GDP and GDP expectations are along with where core CPI is. Everything else you can memorize if you have time, but otherwise shouldn't spend a great deal of time on.
If we have a bond trading at 90 with a 10% coupon and it matures next year, then what is the yield to maturity?
To get the YTM for a bond maturing in just one year, then you can use the formula: YTM = (coupons + (face value – current price)) / current price, which gives you: 20/90 or 22.22% (you don’t have to do the mental math to get the exact percent in an interview, as long as you get the formula right).
Note: You should not bring a calculator to your sales and trading interview. However, you should bring a pen and paper in case you need to work anything out. If you're doing a remote interview, then you can have a calculator off to the side just in case.
For bonds maturing in two years or more, to calculate this in an interview you would have to use the YTM estimation formula, which is:
If you're looking to test out more variations of this question, you can use a YTM calculator.
When most enter onto the trading floor as a summer analyst, they're drawn to desks like distressed debt or equity derivatives because those are the most talked about in the financial press and seem to involve lots of risk taking.
However, there are plenty of fascinating areas on the trading floor that fly a bit under the radar. This is particularly true in the rates trading area where you generally will have a dedicated money markets desk.
What typifies a money markets desk is that you're dealing with very safe, very short duration assets like commercial paper and repos. But because of their safety, and because they are integral pieces to the plumbing of the financial system, you are often dealing in very large size.
If you're at all interested in exploring how the financial system really works, then you may be intrigured by repo trading. All repo trading involves is an individual who owns a security entering into a contract (a repo contract) where they sell someone the security and agree to buy it back at a specified (higher) price later.
So, a simple example would involve the repo provider giving someone $100 in cash in exchange for a security. Then the next day the repo provider gives back the security and gets $101 in return (making $1 for holding the security for the day). The reason why someone may want to do a repo is because they have lots of assets, but perhaps don't have enough cash at the moment.
Repo trades have been in the news quite a bit lately. This is because, as you can imagine, during good times there's almost no risk involved in repo trades (since they're often just a day in duration, but can stretch longer). However, when the markets become more volatile those taking a security from someone in a repo trade may get a bit spooked.
For example, if you (as a bank) enter into a repo with a counter party with an asset that is currently worth $100, and you're promised to be paid back $101 tomorrow, then what happens if the price of the asset falls to $80 and the counter party no longer is willing to pay back $101? As a repo provider you have their asset, because it was pledged to you as collateral, but you paid out cash to the counter party of $100 and now just have an asset you can sell now for $80 so you're out $20!
Credit spreads simply refer to the difference between where corporate debt is trading vs. the underlying treasury of the same duration.
So, for example, if the five-year bond of a certain company (say Ford Motors) is trading at T + 350, all that means is that it is trading at the five-year treasury rate plus 350 basis points (3.5%).
Remember that we view treasuries as having no credit risk since the U.S. dollar is the global reserve currency and (hypothetically) the U.S. can always meet its debt obligations given that it can print whatever level of currency it desires.
So what the 350 basis points (in this example) is showing us is the credit risk of Ford. This can then be compared to other five-year bonds issued by other automotive companies and we can infer the markets general view on the credit risk of Ford (although this is all a bit simplified, but sufficient for an interview).
Now what do we mean by credit risk? What is this 350 basis points really representing? What it is representing is the probability of Ford potentially not being able to meet its obligations and defaulting. In other words, the market is demanding 350 basis points to compensate for the risk embedded in Ford in this part of the capital structure for this level of duration.
So hypothetically, if Ford went into the market and tried to sell a new five-year bond at T + 50 we would expect very little demand from the market because the level of compensation (just 0.50% above the underlying treasury rate) isn't sufficient compensation for the risk of lending to Ford.
Below is a graph I've done up of two credit curves: one of US treasuries and one of US investment grade corporate debt. As you'd expect, the longer the maturity of corporate debt, the wider the spread is. This reflects the fact that investors want more compensation (higher yield) for buying the debt of a company that won't be paid back for many years.
Getting asked about the structure of more esoteric parts of the trading floor is a great way to discern whether or not an interviewee has taken the time and effort to understand various desks.
Don't worry, no one is expecting you to know everything about how to model out a CLO waterfall (although that's a common test for a summer analyst at the end of their time on the CLO desk).
A CLO will be broken down into several tranches. These tranches will have decreasing levels of priority on the underlying cash flows of the levered loans that make up the CLO (to be discussed later).
The top tranche, which makes up the majority of the notes issued by the CLO, will often be structured to ensure that it gets a AAA rating from credit agencies (thus making investors feel it is safe). The bottom tranche, called “equity”, will have the lowest payment priority and is not rated and viewed as being quite risky.
An important point in the graphic above is that the levered loans that make up the CLO often overcollateralize the issuance. What this means is that in theory, if none of the loans default, then equity should get much more than what they put in!
However, the risk equity runs is that levered loans are risky and some that make up the CLO may end up defaulting. So even though the CLO itself is overcollateralized at issuance, equity and some of the tranches above it may be at risk of not being paid back in full over time.
When we talk about a rates trader’s book being properly positioned and taking advantage of the market, this obviously doesn’t mean that if 2yr bonds are overvalued he or she just won’t have any!
Rates traders have such large books that they will always have millions of dollars’ worth of bonds that they may or may not like in order to facilitate client flow and generally be in the market.
Instead the way that a rates trader positions their book is by taking advantage of changes in the yield curve. For example, there’s nothing you can do about owning a lot of 2s. However, maybe you think that 2s will go down more than 5s. This would create a flattening of the yield curve between those two points in the yield curve.
Curve trades involve taking advantage of the relative changes in one bond compared to another along the yield curve by using treasuries and treasury futures to be relatively overweight or underweight certain areas of the curve.
It's generally a good idea to know if the yield curve has been steepening or flattening over the past few months prior to your interview. While this may not be something that comes up in every interview, if you express an interest in any area of rates trading (broadly defined, so this would include MBS trading) then you should know this.
Here's what the 2s5s looks like now:
Discussion around equity derivatives were in the news quite a bit in 2021 due to the increased level of retail trading of various kinds of options. This is a trend that will no doubt persist into 2022 -- especially if we continue to see equity market volatility.
For this reason, I wouldn't be surprised if this summer the equity derivatives desk is the most sought after desk to join.
The equity derivatives desk of a major sell-side investment bank - like Morgan Stanley or Goldman Sachs - are not dealing with retail order floor. They are dealing with large and sophisticated institutional clients who may be using equity derivatives for hedging purposes of for speculative purposes.
Either way, the role of a sell-side equity derivatives trader is not to just take the other side of whatever trade these large clients are doing! When pricing up trades one is thinking about at what price can I entirely hedge out of the risk exposure I'm getting as a result of entering into this trade while still making a profit.
In other words, the name of the game is to do a trade in which you can entirely hedge out your exposure (making no money from the trade working or not for the client) while still making money at time zero.
Equity derivative desks have incredibly diverse sets of risk embedded in their books because of the thousands of trades that make up their book of risk.
Now, things get a little more complicated because it is not always possible to perfectly hedge out all of your exposure on every trade due to things like convexity that make dynamic hedging imperfect (I know this is getting a bit into the weeds; rest assured this is all well above what you need to know for an interview).
As a result of not always being able to perfectly hedge books of risk need to be constantly monitored for left tail events that could cause large losses due to violent market moves.
As I covered in the question above, as an equity derivatives trader within sales and trading you're always going to be looking to hedge out of your position to lock in profits on every trade that you do.
But how do you do this? How do you know what to hedge and how much of it to hedge? Well, like with many things in equity derivatives, it quickly gets very complicated, very fast. This can be especially true for more esoteric trades clients want to do with may require hours of work to properly give a price on.
However, if we try to simplify things down we know that delta of an option simply measures the change in the value of the option for a change in the underlying (with everything else held constant).
So if we're looking at a delta of 0.5 on a trade - garnered from our model - then if we (as a trader on the sell-side) sell calls on a certain number of shares we will then be going and buying half that number of shares to hedge out the risk. This is because, if the underlying moves up in value given that we sold calls we will be losing money (the client making money), but our loss in the value of the call options we wrote will be negated by the long equity position we put on as a hedge.
For an interview purpose, this is everything you need to know about delta hedging. In fact, this would be very impressive for just someone on the desk as a summer analyst to know.
It would take far too much room to go over all the greeks in this post, but in the sales and trading prep course I go over all of them in detail including examples of how the greeks change for basic option positions.
A long put would have negative delta, positive gamma, negative theta, positive vega, and negative rho.
The time value of an option will be highest when you're right around the strike price because you are right on the precipice of either being ITM or OTM.
Obviously if you're ITM or OTM has a large baring on your option value given the binary nature of the outcome (either losing your option premium, if you're long for example, or making it back plus more).
If you know anything about equity derivatives, you know that the Black-Scholes model is incredibly important and foundational model.
However, showing you know the limitations - or perhaps better put, the erroneous assumptions - of the model is a common interview question (if you express interest in equity derivatives) and will set you far apart if you can answer it.
There exists pronounced skew or negative tail in actual returns on shares, meaning that there is a bigger chance of significant losses than is built into the shape of the bell curve.
Continuous random walk
The model assumes that returns follow a random walk, which is not what is actually observed.
The model assumes it is possible to delta hedge without transaction costs and without liquidity constraints (which is obviously not true, even liquid markets are costly or have times of limited liquidity!).
The model assumes you know the level of volatility and that it stays constant over the life of the option.
In the course I have an entire desk guide dedicated to municipal bonds, because I think they are a very interesting and very underrated product to get exposure to.
Municipal bonds are simply bonds issued to finance large projects that are generally in the public interest or represent a public good in some way. They were created, with special benefits other bonds do not get (in particular around their taxation), to try to incentive private capital to fund projects that are for the public good in some manner.
While there are thousands of different issuances of municipal bonds, they can be largely categorized as either being general obligation (GO) bonds or revenue bonds.
As you can probably guess, general obligation bonds are backed by the general taxing authority of the issuer whereas revenue bonds are tied to the actual revenue generation of the project the bonds are funded (but are not backed generally by the taxing authority if the project were to fail).
With Bloomberg, we can quickly get a sense for the overall scope of the muni market. Here you can see the number of "members" (individual issuances) at various levels of maturity, quality, and whether they are GO or Revenue bonds (no need to worry about the "prerefunded" bonds, they're a very small part of the market).
The major buyers of municipal bonds are not the typical clients you see on, for example, a distressed debt desk or who are coming to the equity derivatives desk.
Because of the tax exempt nature of municipal bonds, you often see large private wealth managers, mutual funds, and sometimes insurance companies come in to buy up large swaths of municipal bonds.
Often these folks will buy at issuance and hold throughout the duration of the bond, as opposed to more actively trading them. Although, of course, active trading of municipal bonds does happen, which is why there are dedicated municipal bond trading desks!
This is a very broad question, but quite commonly pops up in an interview context. While I wrote a whole desk guide on mortgage backed securities with more granular questions, let's give a high level overview here.
A mortgage backed security (MBS) can be thought of as a form of ownership of a wide, diverse set of mortgages and the underlying cash flows that come from folks making their monthly mortgage payments.
The individual who holds the MBS will be receiving, every month, effectively the principal repayment and interest stemming from the mortgage pool that the MBS covers.
Of course, there's no free lunch in finance and buying a MBS doesn't entitle you to the entire share of the underlying repayments coming from the mortgages in the pool. The issuer of the MBS - who went through the trouble of packaging the mortgages together, issuing securities off of them, and managing the continued operation of the pool - will deduct a servicing and agency fee.
Another way to stand out in interviews is not only to know the products dealt with, but also why clients are coming to the bank to trade. Many naively suspect - especially in areas like FX - that it's all hedge funds engaged in speculation.
The reality is that every desk will have a diversity of clients who often come to the bank in search of practical solutions to their problems. In FX this normally means corporations who have FX exposure - due to running their multi-national business - that they would prefer not to have.
- A client may be able to issue debt cheaply in a certain country with a certain currency, but will want to swap it to a different currency
- A client may want to lock in a certain conversion rate in the forward market (creating certainty against unfavorable potential developments in the market of a certain country)
- A client may be anticipating the need to spend capital – to build a new plant, for example – in a foreign country and wants to lock in an exchange rate to ensure they can more accurately predict the total cost of the project
Sales and Trading Interview Question Types
All sales and trading interviews can be thought of as having questions that fit into five distinct categories:
Let's break down each type...
Behavioral Interview Questions
These interview questions are what likely you'd expect: walk me through your resume, why sales and trading, etc. However, don't assume that there is no right or wrong answer to these kinds of questions. There are most certainly some things to avoid saying and some things that need to be included in answers to these questions.
For example, saying you're interested in sales and trading because you've been trading stocks since a young age is a bad (but very common) approach. This will lead your interviewer toward thinking that you don't know much about what actually occurs on a trading floor. Folks aren't just buying and selling equities they think are undervalued -- in fact, that's not what anyone is doing.
Your answer should show you understand the primary function of a modern trading floor is market making and express an interest in desks that show your understanding of the products being traded on that desk.
Market Interview Questions
Much like behavioral-based interview questions - need to be approached cautiously as well. It's entirely insufficient to just know some common equity benchmarks and where they are currently. You should have a reasonable view on where rates are and where they're going along with where credit markets are and where they're going. While no one expects you to have an overly developed view on where the price of gold is going, for broad areas (like equities, rates, and credit) you absolutely need to have an underlying view. Whether your interviewer agrees with your view or not is much less important than just having a view.
Note: If you have access to the course you can feel free to send me a little write up (one or two minutes max) on your views and I can review it.
Investment-based questions are another key type of question that can come up. Many spend a great deal of time developing an equity to pitch in an interview. During my interviews - at J.P. Morgan and Goldman Sachs, among other banks - I was never asked to pitch an equity.
What's more common is you'll be asked to pitch an asset class worth investing in and a certain security within that asset class. This is more reflective of the work of a sales person in sales and trading, since the vast majority are not pitching single name equities to clients (again, almost no one is!).
If you have a view about where the five-year treasury is going or a specific type of rates trade, like a curve trade to pitch then that is far more impressive than saying that Tesla is overvalued. It shows you understand a large area of any trading floor (rates trading) and that you are capable of developing a thesis in what many without prior experience would consider to be a more esoteric area.
Questions for Your Interviewer
At the end of every interview you'll have the opportunity to ask your interviewer questions. Asking thoughtful, nuanced ones - of which I give examples that are applicable to any interviewer in the sales and trading guides - is the single best way to stand out and leave a favorable final impression.
These questions should show your deeper knowledge of what actually occurs on a trading floor and not be generic questions like, "What area of the trading floor would you recommend to someone like me?"
As mentioned above, you'll likely get a few product-specific questions about desks that you've expressed an interest in. When you get these questions you shouldn't be daunted; if you're being asked them it's because your interviewer is impressed by you thus far.
That's why I created nine Desk Guides in the course that break down the major desks, in interview Q&A format, to make sure you have the basic understanding you need of everything from municipal bonds to collateralized loan obligations.
With all that said, there's no reason to get too overwhelmed. So long as you have the basics covered, then you can really shine in a sales and trading interview. One of the ironies about sales and trading interviews is that while they can cover a lot of ground, if you have a few stellar answers (or less common answers than most give) then you can really stand out and land the offer.
Now let's dive in to ten common sales and trading interview questions.
Sales and Trading Interview Prep Advice
Entering into the sales and trading interview process can appear daunting. It's true that there are a lot of questions that could be asked, and entirely missing on a few of them could be the difference between getting an offer or not.
However, that's ultimately why I created Sales and Trading Interviews. It is possible to get up to speed on sales and trading and not leave any glaring holes in your preparation without getting bogged down in reading dozens of academic books (which is simply impractical and likely to confuse more than help).
By breaking down the types of questions that can be asked into the five buckets mentioned at the beginning of this article you'll be able to quickly figure develop answers to the most common questions.
Part of the reason why I spent so much time creating the desk guides as well is that knowing where you want to end up (in terms of desks on the trading floor) is not just important in the context of your interviews. It's also critical to making sure you begin your program in the spot that is likely where you'd like to end up. Everyone who has been on the trading floor knows of talented, intelligent people who exited the industry simply because they started off in the wrong area.
The reward of getting your foot in the door and ending up on the right desk is having the opportunity to land an extremely high-paying job, with reasonable (for high finance) hours, that involves being intimately connected with the markets.
Sales and trading is a job unlike any other and thoroughly worth it for the right people. Just remember that while getting an offer is the first step, it's not the final one. Don't let others tell you what desk to try to join or what role is best. Gather as much information as you can, think critically about your attributes and interests, and then make an informed choice for yourself.
Note: I've been asked if I have all of these questions in PDF format, so I put them all together here: sales and trading interview questions PDF.
As always, best of luck in your preparation! Just remember to not get bogged down or discouraged as you go along. Remember that most come into sales and trading interviews incredibly unprepared, so the bar is most certainly not too high to clear with good preparation.