What is Sales and Trading?

Sales and trading is the function of the investment bank that people most associate with “Wall Street”. The purpose of sales and trading is to facilitate the buying and selling of securities and other financial instruments between large institutional clients. These clients include hedge funds, mutual funds, pension funds, and large asset managers. Typically, a trading floor is divided into two different divisions, Equities and FICC (fixed income, currencies, and commodities). Within each asset class, desks are divided by product type (cash, derivatives, futures, etc.) and function (sales, trading, or structuring). The Sales & Trading division at an investment bank is often referred to as the Global Markets division.

Summer interns in Global Markets are called sales & trading summer analysts, and have a vastly different experience than investment banking interns because they don’t have the licenses to trade or sell financial products. This limits the amount of “real work” a summer analyst can contribute. Instead of actually trading or selling financial products, a summer analyst’s main responsibilities are to create market summaries, develop trade pitches, develop an understanding of their desk’s product, provide data analysis, shadow desk members, and build relationships.

Entry level employees are called sales and trading analysts. Sales and trading analysts perform the “grunt work” for their particular desk. They are the ones writing market summaries, providing trade summaries, performing data analysis, and “backing up” more senior colleagues. As an analyst proves themselves, and gains more experience, traders receive small trades to execute, and salespeople begin to work with smaller clients.

As a sales and trading analyst, you develop an in-depth understanding of the financial markets, market structure, and your desk’s product, as well as strong relationships with clients on the “buy-side”. The skills you develop, and relationships you build, lead many sales and trading analysts to move to hedge funds and prop trading firms. However, many analysts advance vertically and remain in sales and trading or move horizontally to other areas of the bank, such as investment banking or research.  The skills and knowledge gained as a sales and trading analyst are very niche, so exit opportunities are more limited compared to investment banking.

Salaries for sales and trading analyst positions are high, but these opportunities come at a cost, since the work is high pressure and hours typically range between 60 and 70 hours every week. Sales and trading is also highly performance based, so bonuses can vary based on the health of the financial markets. Sales and trading roles are divided by asset classes, products, and functions. See below for a description of the different functions.

Role of a trader

In the simplest terms, traders are market makers. They take positions in the market in order to facilitate trading of a security or other financial instrument. Traders accomplish this by quoting bid and ask prices to their clients. When pricing a security, a trader must balance the desire to “win” the trade, by providing the client with an attractive price, with managing the risk of their desk’s book, by quoting a price that provides the trader with a larger room for error. Since competition among banks is so high, traders must be great risk managers and have a strong understanding of market movements in order to win business and make money for the bank. Traders make money through commission and by buying securities in the market for cheaper than the price they quoted the client. Often times, a trader will intentionally lose money in the market on the initial trade, as long as they know the commission will be greater than the loss. Once a trader takes a position in the market they must continue to manage their risk by hedging their position. At the end of every trading day, each trader must make sure that their trading book is hedged within the investment bank’s risk limits.

Role of a salesperson

Salespeople communicate directly with institutional clients to pitch trading ideas and take trade orders. Salespeople primarily serve their clients in 3 different ways. Firstly, the salesperson will reach out to clients with trade ideas that they think fit the client’s strategy. Second, a client will contact the salesperson to get ideas for the most efficient ways to put on a certain market view. Third, many clients know exactly the trade they want to put on and they will contact the salesperson for a quote. The second relationship dynamic for the salesperson is with the bank’s traders in order to price their clients order. The relationship between a salesperson and a trader is very important because there is often a negotiation process between the salesperson and the trader when deciding what price to offer the client. The salesperson’s number one priority is to win the trade so they often want to provide the client with a better price than the trader desires due to risk concerns. For a bank to be successful, the salesperson and trader must act as a team and be willing to understand each other’s position.

Role of a structuring analyst

Structuring varies from bank to bank. However, most structuring desks include  assisting sales and trading with the creation, pricing and marketing of esoteric structured products to clients. Structuring desks are seen as the most “technical” on a trading floor. On a structuring desk you will be exposed to more deal type work and receive significant modeling experience.

Resources from Mergers and Inquisitions

A day in the life of a Sales & Trading summer analyst

Equity Trading

Fixed Income Trading

Sales and Trading interview preparation