Traders and Brokers: Bud Fox vs. Gordon Gekko?
Assuming you’ve seen Wall Street (the awesome, original one, not the watered-down sequel) – it is a requirement to work in finance, after all – you know something about traders vs. brokers.
The traders are like lone wolves who go in and make tons of money by making quick decisions…
But supporting every successful trader is his/her broker – the one who actually connects buyers and sellers and makes trades go through.
Both traders and brokers are linked to the market and need to stay on top of everything that’s happening – but beyond that, they’re quite different.
So, what do traders and brokers actually do?
Which one is a better match for your personality? How do you break in?
And most importantly, who makes more money?
Definitions and Types of Traders
You might remember from the guide to fixed income trading that we defined 2 types of trading: agency trading, where you simply execute orders for the client, and prop trading, where you invest the firm’s own money and make your own trading decisions.
But the outside world has no idea what those terms mean, so they usually refer to prop traders as “traders” and agency traders as “brokers,” which is what we’re sticking to here.
Prop traders exist at dedicated prop trading firms and hedge funds, and they used to exist at investment banks before the US government banned them (the verdict is still out on other countries).
Brokers exist at both banks and at independent firms called brokerages; the difference is that these smaller agency-brokers are pure middlemen and only fulfill orders while large banks have a lot more going on.
There’s more to it than that and as with other areas of trading, the dividing lines can get blurry, but that’s the basic difference and how we’ll be using the terms here.
- Gordon Gekko – Trader
- Bud Fox – Broker
OK, back to how they’re different…
What Do Traders Do?
Traders are at the top of the food chain – entire teams in the back and middle office support all their trades and fix annoying IT issues for them.
They analyze equities, derivatives, fixed income, forex, commodities, and anything else they might be trading and decide on what to trade, what strategies to pursue, and how to invest the firm’s money.
If the trading floor were a jungle, traders would be gorillas who pound their chest constantly while stealing bananas from everyone else.
Everyone wants to be a trader, but it’s tough unless you have the right education, background, and personal connections.
Unless, of course, you’re Jerome Kerviel, but we all know how that one turned out.
Brokers – Support Staff?
After a trader decides what to buy or sell, he would call the broker and say, “I want to buy/sell XX of XX – can you make it happen?”
Technically, brokers “support” the traders but they’re completely different from the back and middle office crew.
Unlike the back and middle office, brokers generate revenue – they connect buyers and sellers and make a commission on each successful transaction.
The more shares that a trader trades through the broker, the more money the broker makes – and the more traders the broker services, the more money he makes.
Personalities – Traders
Traders are judged almost 100% on performance – it’s one of the few professions on Wall Street where you can excel even if you show up without shaving for a week or two.
If you bring in massive profits for the firm, you’ll be rewarded.
Traders spend most of the day in front of their 8 or so computer screens – they might discuss ideas and market news with other traders, but overall there’s less teamwork than in management consulting or investment banking.
So the trading profession attracts more introverted individuals who are good at math and great at working independently: think math and engineering majors, with a few random frat boys thrown in for good measure.
Brokers: Got Extrovert?
For brokers, it’s all about relationships and networking: you’re judged based on your ability to bring in traders and keep them on board.
Profit still matters, but the quality and quantity of clients you bring in also plays a big role.
If you’re a good schmoozer and you’re always the first to hear about rumors and gossip, you’d be a great broker.
If Malcolm Gladwell were writing a new column about traders and brokers, brokers would be part-maven, part-connector – they know everyone, and they track of tidbits of information to entertain and inform traders.
If a client really liked Turkish food, a broker would know all the best Turkish restaurants within a 5 km radius.
There’s a lot of back-and-forth with traders on the phone during the day, so brokers often invite traders out for food, drinks, and sports (and sometimes “other forms of entertainment”) after work.
It’s nothing like the back office-trader relationship where they barely acknowledge one another unless given a reason to work together on a project.
Breaking In: Trading vs. Brokering
Large banks do take sales & trading summer interns and make S&T full-time hires, but the numbers are lower than what you see in investment banking.
Major trading desks such as credit, equity, and forex might only hire 1 or 2 per desk – whereas in banking, groups like ECM or M&A might take on 5-10+ new analysts depending on the team size.
With the 2010 financial reform, those numbers will shrink even further as banks disband their prop trading groups and everyone migrates to hedge funds.
For networking, resumes, and interviews for trading, check out our coverage of sales & trading vs investment banking – there are significant differences, especially in interviews.
With brokers, there’s even more of a focus on experienced hires: on-campus recruiting is rare, especially for smaller agency-brokers, and you pretty much have to network your way in from related fields.
Some brokers also post ads online and if you have the right experience, applying online might actually work – that’s because they’re looking for very specific experience and as you move up, you get more and more specialized.
Resumes and interviews are similar to trading at the entry-level, though there may be more of a focus on relationships and sales skills – similar to sales itself – at dedicated firms.
Advancement depends on how business is going: if your desk is profitable, wants to expand, and everyone likes you, then they might give you your own portfolio or trading book once you’ve proven yourself.
Note that even as you “advance” within trading, your actual work may not change that much – you’re still trading all day.
It’s not like investment banking where MDs are wining and dining clients and analysts are pumping out pitch books – you just get more responsibility and a higher percentage of the profits.
On the brokerage side, advancement and upside depend on how many new clients you can bring in and the commissions you generate – just like with trading, the work itself doesn’t change dramatically as you move up but you work with higher-volume clients and earn more.
Work hours are roughly the same for traders and brokers – they get in an hour or two before the market opens and leave an hour or two after market close.
Brokers might try to get in earlier than traders and leave after the traders leave just to make themselves available at all times.
Both are completely different from investment banking: no all-nighters and no 100-hour workweeks.
Think 60-70 hours per week rather than 90-100.
Who Makes More Money?
And now to the $50 million (or should that be billion?) question.
Most people would say, “Traders make more money!”
After all, some traders make tens of millions per year, and then there are special cases like John Paulson – he made over $2 billion in cash each year in 2008-2009 by betting against subprime mortgages and CDOs.
No one noticed or cared what his broker made.
The problem is that everyone focuses on these once-in-a-lifetime success stories rather than the average trader: for every profitable trader, there’s a trader somewhere else that lost money.
Meanwhile, the broker in between made decent money even if one of the traders did not.
Multiply this by dozens of trading clients and you can see how broker commissions can add up to a comfortable lifestyle, all with far less market risk.
Specific Numbers, Please
Numbers are tough to verify, but most brokers start in the mid 5-figures range and the most successful brokers might be in the mid 6-figures range – it’s not like trading where the stars could make in the tens or hundreds of millions or billions of USD each year.
If you want to believe Salary.com, they have a nice graph here.
Keep in mind that the average (prop) trader makes nowhere close to that each year – some small prop trading firms don’t even pay you a salary and instead base everything on your trading performance, so you could end up with a “paycheck” of $0.
The maximum pay for traders is a completely different order of magnitude, but the standard deviation is also much higher – so the median pay may not be much different between traders and brokers at the entry-level.
And don’t underestimate how much you can make as a broker: brokerage firms often make more than trading firms that are suffering from a lackluster year.
Are the Machines Taking Over?
You’ve probably read about how trading is becoming more and more automated – should you even bother getting into the industry if computers will take over anyway?
Keep in mind that there will always be a human element – someone needs to program algorithms in the first place and continually test the programs.
So it’s not as if the industry is dying – it’s just shifting in more of a quantitative direction.
There’s no denying that trading itself has become more of a science club over time – so unlike with investment banking, advanced math and programming skills would be helpful here.
Even on the brokerage side, more and more agency trading activity is becoming computerized as well – there will always be a need for the outgoing broker who knows everyone, but the math nerd might not be far behind him.
This article was guest-written by Zeke Lee, a Stanford graduate, former management consultant with Booz & Company and former derivatives trader on Wall Street (Oh yeah, he’s one of my friends from school as well).
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A successful broker could always go on to set up their own brokerage firm and potentially make tens of millions of £/$ right?
Uh… in theory, yes, but it’s unlikely to happen these days because the industry has become more automated over time and there aren’t as many opportunities now.
I’ve not seen this touched on, but I do think it is an important talking point about the two roles.
As we know, there is all this talk that trading will be fully automated in the future, whether in 10-20 years, I’m unsure.
Whereas broking wouldn’t be due to the obvious human elements of it and the sales aspects of it.
That said would it be fair to assume that trading might not have a future compared to broking which may still be around?
From what I can gather the sort of exit opportunities you can get from sales, you’d get with broking too. Whereas if you geared yourself for trading, it might be fruitless if you got in only to find it is say 95% automated – unless you trade with a prop house which is basically your own money most of the time. While finding yourself with limited exit opportunities.
Just to add, I’m referring to getting into trading as we know it now.
Would one have to seriously consider developing themselves in a quantitative way to get into what trading week become (outside trading for yourself or a prop house)?
Just wondering since I’m sure the very real possibility of automation (for trading more so, I’d say) would certainly be factored into the career planning of trading. Especially when weighing whether one should go into sales/broking or trading.
Yes, it’s possible, but there will always be some human element to trading as well, especially for more complex scenarios that require intuition.
However would you recommend developing oneself in a quantitative way (such as learning a programming language or two or do quantitative modules in university) to better position yourself for a career in trading for the reasons above?
I ask since even though there will be a human element to trading, it seems like most, if not all of it will be steered in a quantitative direction. That’s what I’m understanding, at least.
thanks for the info
First of all thank you for such a helpful website of yours! I have already recommended it to many friends.
However, I am still confused of the difference between sales & trading (Sales Side), broker, inter-dealer broker (IDB). I am mainly confused by the different roles that Sales (S&T) and Brokers take.
Thank you in advance
There is a lot of overlap, but brokers are more responsible for the execution of trades, whereas salespeople are responsible for getting clients to trade in the first place.
Am I right in thinking that a sales trader is a mesh between being a broker and a (execution) trader: you get clients like a broker would do and you trade for said clients?
Would the income be meshed too i.e. you get the commission for the brokerage part of the role yet you get the profit split as you would from the execution trader role?
If I’m right, I’m assuming sales trading is quite hard to get into.
On a side note, if you’re a sales trader (not in a bank), could you work your way up (via applying, networking etc) to the point where you can be one in a bank? (Or jump from sales trader to broker/execution trader in a bank?)
Yes, I’d say sales trader is a “mesh”. You do speak with institutional clients, and you also execute orders. In terms of income I am not 100% sure; I believe it depends on the bank and performance of the group. But I do believe the commissions is based on the volume of the order as well as the pricing. In terms of the exact split, I am not 100% sure. On your last question, yes, I believe you can do so.
Do brokers do any kind of trading?
I was told by one that they do a bit of scalping here and there. Another said, apart from the sales part, they’re like traders whereby they get clients and essentially trade for them.
Then I have another set of people saying that brokers and traders do totally different things… then another set who say they can be quite similar.
So confusing! Brian, Zeke… which crowd actually has it right?
It really depends on the group and firm… as this article mentions, there is a blurry line between brokers and traders. It’s best to think of brokers and agency traders being similar, but prop trading is quite a bit different. People aren’t “wrong” about them being similar or different, it just depends on the company and the type of trader.
Is it possible to move from consulting in a firm like Reuters or FactSet to broking or trading?
I know sales experience is valued to get into broking, but what about consultancy?
Or is a masters perfect for rebranding?
Potentially, yes, but I’ve never seen anyone do that… so not very likely. A Master’s degree can be helpful in certain contexts, please see the article on the topic.
Also, there is no need to leave comments under different names all over the site. We can see that your email and IP address are the same each time – if you have this many questions, instead of being embarrassed or hiding yourself, just queue up your questions and email them to us.
Thanks and apologies for that, I was actually unaware that I could email the questions.
Interesting article. I’d add what a few brokers have told me: A broker who trades part time with a large account enough would have a very comfortable lifestyle and have the best of both worlds, so to speak.
Though I do have a question, not sure if it was asked yet.
Can you move from broking to trading, vice-versa?
If so is the transition easy, or would you have to still network and/or rebrand yourself with a masters?
I imagine this applies to trading more in hedge funds than banks considering the cut downs banks are making (correct me if I’m wrong).
Thanks in advance!
Yes, potentially you can do that, but you need to move earlier rather than later or it will be very tough. I don’t think you need a separate degree, but networking would be essential. It may actually be easier to move from brokerage into a sales role.
Apologies for all the questions, but I’m pretty interested in your view in this as I’m under the notion that apart from the subtle differences, both roles are the virtually same with skill sets that can easily transfer. Though I’m open to the idea that I’m wrong.
I get how that works as far if you’re someone who got into a target for undergrad.
But I’d hazard a guess and say that the rules are different if you went to a non target. The reason I asked about rebranding using a masters from a target is because this business with targets and non targets does matter to traders and brokers the same.
So I’m asking from the perspective of someone who managed to break into broking while in a non target.
Networking came to mind too, but I know targets like LSE and Oxbridge tend to have specific networking events for these roles (well more so for a analyst role that could lead to a trading role, IBD etc) as well as the sheer access you’d have to alumni in the relevant roles.
Couldn’t this help if you waited too long to transition from broking to trading?
Is too long to wait before making thee switch, 5 years+?
Yes I’d say 5 years+ is a bit too long. I’d say 2-3 years max, but readers may have other perspectives.
But what do you make of using a masters at a target to “rebrand” yourself if you went to a non target and/or found yourself in a position where you waited beyond 2-3 years?
I don’t think a Master’s degree would help much with moving from brokering to trading.
So are all traders “prop traders” or do they also have clients? Is the different between a hedge fund manager and a trader simply who they are investing for?
No, flow traders that just accept clients’ orders and trade on behalf of them also exist.
Hedge fund managers run the entire operation and make investment decisions, whereas traders mostly just execute their ideas (and whatever the investment analysts there come up with).
Are you describing a set up where rather than traders using their own strategy, they use the “in-house” strategy? That seems more like agency trading to me.
I’ve seen quite a few of these around, the only exception being possibly banks and places where you can rent a desk to trade then eventually get backing of you’re good enough.
What is the exact difference between a sales trader and someone that works in an IDB (ICAP)? I am currently looking at Sales roles but IDB also appeals to me, as an undergrad from a non-target uni, what would be my best options?
ICAP is an electronic broker dealer. I am not quite sure what day-to-day life there is like but ICAP is a decent firm. However, I’d still prefer IB sales if you have that option especially if you want to move within IB/PE/AM.
Thanks, would it be possible to move from IDB into a sales role?
Yes it is possible, can be challenging.
I am an independent trader who has invested solely for myself successfully-no employees. I have someone who is interested in me trading for them with a substantial amount. I am not interested in comment on branching out like that. I am sounding you out what would be a fair way to charge. A % of profit on each trade is what I think is appropriate. A % between 10-15%. The potential client is willing to accept brokerage fees, potential losses. Thoughts?
Really educational thank you, I reckon your current followers may want even more well written content of this character continue the excellent get the job done.
Thank you for your kind message and for visiting!
What are your thoughts on these two routes to enter trading [Or IB as you will read at the end of this post] (and a long term, progressive, career in Finance)?
1) Complete Under Graduate Degree in Finance, enter a brokerage for 1 year then complete a Masters in Finance/ Financial Economics.
2) Complete Under Graduate Degree in Finance and go straight into the Masters.
3) Option 2 then progress onto a PhD in Finance/ Economics while simultaneously resitting pre-University exams to be able to apply for Graduate roles.
I currently have about a year and a half full time Sales experience in the UK and Dubai in an Internship, I’m in the top percentile of my class cohort in Finance but have quite poor pre-University grades (way below what’s being asked for any jobs in Front Office that I’ve seen) .
My Under Graduate isn’t from a top school but I may be able to get a Scholarship from a UK Top 20 University for 2014/15.
I’m very motivated to get in but open to the very different experiences of Trading and IB/ M&A.
What would you kindly suggest? I am going round in circles and your advice would be great!
I’d choose 1 over 2, and 2 over 3. Having work experience and a Masters in Finance at a target will help
Great article! And a great hope for someone like myslef… Below is the scenario-
– You have realized that in NEXT 5 years u must become a prop trader (currency) within HF or large Bs in HK, UK or US.
– U are currently working for a small family run manufacturing company where u have been Assigned (for almost a year now) an additional responsibility of speculating currencies (GBP, EUR, USD) and taking positions upto 5 millions at one go. (Company named this a Treasury Department for the currency arbitrage )
(U are in break even as of ur performance is concerned..)
– U’ve learned that u have a passion for currency trading and u are ready to pay the price to make it big in this industry… U crave to become one of those professional traders (Big BANKS, HF, etc) and eventually achieve ur 5 years goal.
– You are stretching your arms and legs to get as deep as you can into this…
– You set a goal that u want to break into the trading floor of any bank in next year or two from the bottom level…
– You are zero in networking yet, do not have a clue where to begin..
– Unfortunately u do not know where to start from – if there is any reputed courses/ degree that you can have under ur belt (apart from MBA that u already have and almost 6-8 years of sales and MNGT experiences u have already earned) that could help u outnumber your competition in the interview..
– U are an expat, HK resident, cannot speak Cantonese as well as mandarin at all…
How would u succeed achieving your ultimate goal? Where would you start? How and what would you equip yourself with? What would be ur game plan?
Advice sincerely appreciated!
I’d start networking with the currency trading community in HK – perhaps there are FX events in HK you could explore, or you may even want to explore using LinkedIn to connect with traders there. I’d also encourage you to trade your own FX portfolio if you haven’t already been doing so. You may want to start small and explore boutiques first
Thank you for your response.
I’ve been looking out for currency trading communities and FX events in HK, but I haven’t had my luck so far.
LinkedIn – I am connecting through number of Traders in Hong Kong and around the world, and as one of your other article/podcast suggested, I am planning to emailing them and asking for some time as well as advice on the phone first…
I have been trading my own FX portfolio as well with FXCM for four months now. Although I have been learning various Technicals & strategies, and implementing them at the same time, I have managed to preserve 60% of my portfolio and I know I will make profit by the end of the year.
Exploring boutiques is something I am having difficulties with. I cannot find any platform or site that gives me details about these boutique Prop Trading firms.. Any suggestions?
And after finding and listing them, any advise on how to effectively approach them?
Thank you very much once again.
I’d suggest you to do some research on boutiques specializing in FX in Hong Kong. If you can’t find any names online you may want to speak with your contacts in the finance industry and see if they have any input. To approach them, just tell them your interest in the industry and ask for an informational interview:
Hello I’m am 18 year old year 2 student at Swansea University studying BSc financial economics and was wondering what I need to do to get a job in the trading floor of an investment bank e.g: Goldman Sachs. I
Join an investment club. Trade your own portfolio. https://mergersandinquisitions.com/sales-trading-resumes/
Hello and thankyou for a fantastic article! I am in my first year Ba in Economics from the University of Sheffield and I have been trading from home for the past three years. I want to break into prop trading. What are my options? Cheers
I’d suggest you to reach out to boutique/smaller firms to gain more experience.
You may want to visit:
Great site !!! I want to move from IT Consulting to Investment banking.
A securities company is offering me an opportunity to work as a Wall Street Trader. Training would be for 3 months.I eventually want to go into P.E.after MBA.Will this experience make a difference when I apply for an MBA?
What do I do ..I am confused..Please help
It won’t be terribly helpful for PE or IB because trading is very different… better than no relevant finance experience, but not ideal for those types of roles. It’s better for trading or hedge fund roles post-MBA.
Would a bulge bracket IB allow a junior associate to take 4yrs off to do a MBA/JD (at a top school), and allow him to work for them when he came back? Assuming they were on board, would that be a bad career choice(to take yourself out of the work force for so long)? What area of IB does a law degree fit in best with?
Unlike consulting firms, I think most BBs don’t have the option of reserving spaces for employees who want to leave for school. I’m sure there are exceptions – I know a contact who managed to negotiate a year off to explore other career options (space guaranteed after one year) with a top firm.
Re whether doing an MBA is a bad career choice or not, I’m not quite sure if you need it if you’re already in IB. If you want to retool yourself (pursue other careers) or take 2 years out yes maybe.
I’ve been interviewing for middle/back office operational positions. And it seems like they want a more extroverted personality than an introverted.
Probably, because the team might want a more extroverted team member to interact with members in the front office. It depends on the interviewer and the team too.
What do you need to do if you want to become a broker in London ? An specific education required ? And what ours do brokers work ? 6am-6pm ?
Yes, at least a university degree. Yes along those lines.
AMAZING ARTICLE and GREAT INFORMATION
i have only one question as your article cleared up so much for me except ” what is the average commission % a trader makes per profit margin ”
It depends on the trader, the firm and pay structure – hard to say.
Firstly, awesome site! The articles are always interesting and really provide an insight to all the financial jargon that flies around.
I am currently working in client service at one of the largest online brokers in australia and am completely sick of the mentally degrading
Task of handling inbound enquiries from retail clients. I am very keen on becoming a stockbroker or a trader.
1) is it “normal” to be stuck in so-called service roles when starting your finance career for at least 18 months if you did not get a grad?
2) from what I have heard a stockbroker, at least at the junior or trainee. is simply a white collar tele sales role (which I am fine with)
As a stockbroker,.at least in the general sense, do you actually get to learn the financial markets or are you really just a phone jockey aka boiler room?
1. It depends, I can’t answer this question though a lot of entry level roles in finance are not as exciting as they sound
2. It depends on your team, your company and your role! I can’t say.
I am an independent forex trader who broke into this field from an unrelated area in financial services. I have a high-probability and consistently profitable trading method and make around 400-500% return per annum. My only problem with independent trading is that it is a lonely activity, I feel isolated. Would it make sense to seek employment with a hedge fund or prop trading firm? Are these realistic alternatives as long as I can provide audited results?
Is Institutional sales, Private Wealth Management, or being a broker better (higher average/median compensation) than being in the middle or back office?
Yes, all of them are better. Not sure about exact compensation difference but probably not even much different depending on the level.
What are the exit opportunities for Institutional Sales, Private Wealth Management, & being a Broker?
Sales –> More sales roles or maybe trading; PWM –> asset management or more PWM or maybe trading; broker –> similar.
Can you explain the difference between Institutional Sales Trader/Institutional Broker and a Stock Broker?
Does Institutional Sales mean that you solicitate securities that your firm underwrites?
How do you break into Institutional Sales? What skills do they look for?..I know a book of clients.
But do they they consider sales experience in originating mortgages, saling insurance?
Private Wealth Management? Retail Brokerage?
Institutional sales => cover institutional clients (hedge funds/long funds)
No. http://www2.goldmansachs.com/careers/choose-your-path/our-people/brietta-profile.html should address your questions
I’m a high school student. I want to make money, that is all. I’m thinking trading provides the most potential to make huge sums of money while still working manageable hours.What path do you recommend I take. My SAT is going to be in the 2300-2400 range and I am actually more interested in the humanities, although having great aptitude in math/science stuff as well. I’m half chinese, half white. I’m thinking maybe the Econ route would be good.
I would say get to college first and then re-think your life plans, it’s foolish to commit to anything at this stage
Yes, but I would imagine getting a headstart would be beneficial as it would be in other fields. Also, it seems that admission to the Ivies and elite colleges is growing more dependent on a demonstrated focus on a few interests rather than a well-roundedness.
Would it be better to explore my genuine academic interests/passions, postponing thoughts of Wall Street until college?
That would require branding myself in a totally new light.
What is trading like anyway? What do most of the traders from elite colleges at top firms make (compensation)?
Honestly I am too far removed from college admissions to give a good answer there as it was much different when I applied. Trading – see everything here under Sales & Trading: https://mergersandinquisitions.com/investment-banking/
The material that you post about the different fields within finance is very informative and helpful.
I am currently work in a big four accounting firm in North America, I have worked in audit for 3.5 years, I have a Chartered Accounting designation (equivalent of a CPA) and I currently have the opportunity to shift into Transaction Services (Due diligence, etc.) in my firm.
However, my goal is to land a job in sales & trading with a bank and I wanted to ask you for advice on the best way to make this transition (i.e. what further education to pursue, how to improve my candidacy considering my current profile). Also, I wanted to know what weight a CA or CPA along with audit experience in a big four accounting firm carries in the banking world (trading, ibanking, PE.
Thank you very very much
CA/CPA does not really matter for those fields, they’re the most applicable for banking though. At this stage it’s almost easier to go work for a small prop trading firm first and then move to a bank; you could do TAS –> M&A –> Trading but that is much less direct.
Thank you for your response.
1) I like your idea of going to a proprietary trading firm as it will supply me with experience in trading that I can use later in transferring to the trading arm of an investment bank. However, are there any criteria by which to judge which proprietary trading firms should be joined and which not to join, i.e. only join ones that would open up doors for me in the future and not limit my future opportunities.
2) How do proprietary trading firms advertise their postings, on general finance websites (do you have any in mind?) or are there specific websites or other mediums which they use to advertise their job postings?
3) Why would it be TAS – M&A – Trading, what is the logic behind following this process. What value does the M&A experience add and does it have a strong weight in entering into trading.
1) It’s almost impossible since they disclose so little information; try to join one that actually pays a base salary.
2) Job posting sites, networking and referrals – headhunters are not too common.
3) At least M&A shows that you can work at a bank and lets you meet traders at the bank, so you can network more easily.
I can’t tell you how helpful this site has been for me. I have received an offer from a boutique bank and I’m not sure I would have been prepared if it had not been for this site. Also, I was wondering where you see a smaller bank’s bonus to be. I know you estimated 60-70 in an earlier article but I don’t really see them offering that to me. What do you feel a firm around 500 people will offer to a first year analyst?
Thanks again for all your help!
Usually 50% of what larger banks offer (if it’s a true regional boutique e.g. not Lazard or Evercore)
hi, I am interested in this article. could you tell me the difference between a prop trader and a hedge fund manager in a hedge fund. look forward to your reply.
They’re similar except the hedge fund manager is the one who runs everything and is in charge of other traders
thanks a million!!!
Brian, are you half asian or asian by any chance? ;)
Most Asian people don’t have Italian last names… so no, not even .00001% Asian. I am actually enormously tired of being in Asia and am leaving in a few months.
I had a ML PWM internship this past summer. On my resume and cover letter should I write Bank of America Merrill Lynch or can I just write Merrill Lynch? I feel like writing out Bank of America Merrill Lynch makes it look cluttered. If I apply to Bank of America ibd, would they care that I just wrote ML and not B of A ML?
Um just give the official complete name, I don’t think anyone will care
Kinda a random question, but in terms of landing an i-banking job, will I have a far better chance of getting an I-banking analyst gig in NY versus Chicago? Are there 3 times as many banks in NYC vs Chicago?
I don’t think there’s a big difference… more banks but also more applicants.
Do you think it looks bad for analysts who don’t finish out their two-year program when they apply to competitive b-schools? I definitely don’t want to stay in anything finance-related, but I do want to go to H/S/W eventually and don’t want them to think I couldn’t tough it out.
Depends what you move to… if it’s something else in business, not really. But if you leave to do something completely different then that might not look good when you apply to business school.
Hi brian, do you think it’s a good idea to organize school events such as industry talks or guest lectures, panel discussions involving bankers?
I went to another school for such a lecture and discussed with two MDs such events in my school. They were interested. I have some other contacts as well and I can invite them too. Of course no guarantee.
Should I organize such events so that more people get to meet them, or should I keep their contacts to myself? I want to organize them since I like such work and it may even impress them, but it takes a lot of time and efforts. Is it worth it?
On the other hand, an analyst friend keeps telling me, “don’t let your schoolmates know what you know about finance”. So what should I do?
For the time and effort you would have to put in, no, it’s not worth it, especially if it takes away from networking / school / interview prep. Only do it if you have tons of free time and don’t know what else to do with yourself.
Sorry I didn’t mention it’s part of my school finance club’s plan. So I’m actually doing this as a part of my extra-curricullum activities, and I can get others from our club to help.
So you mean I shouldn’t do it because there’s no obvious benefit and there’s a certain amount of time and effort that I have to spent on it?
Unless that event somehow gets you access to more bankers than you could meet on your own, it’s not worth it. Time is impossible to replace and you don’t want to waste it on setting up events rather than networking.
Hey Brian, how are the big 4 accounting firm entry positions for undergrads (ie. staff accountants) salary level compare to IB analysts? Also, what about the difficulty of moving up the corporate ladder and how long it usually takes for each respective job?
Salaries are usually $50-60K so about the same as IB analyst but there’s no bonus. Advancement is actually more difficult because it’s not like banking where people burn out / go crazy and start murdering others in their bathtub so most Partners stay in it for a longer time – Partners might make low to mid 6-figures, so way less than MDs at banks.
Nice article. I don’t agree brokers making less money as I have seen “sales trader” (basically brokers) in institutional brokerage racking in 7 figures.
With no prop trading in investment bank now, are all the S&T desks in the ibanks practically like a brokerage house? I always wonder how they are different from institutional brokers.
That’s true, but the ceiling on brokers is still much lower than it is for traders (where some will make 8, 9, or 10-figure sums).
Yes, most S&T desks have shifted to become more like brokerage houses rather than the prop trading desks of the old days – most traders have been shifted over to the flow side or have moved / will move to prop firms or HFs.
Any articles on other department/divisions of an investment bank?
Like mid-office, research, technology etc. What do they do?
There’s one interview on the middle office and a few on the back office if you do a search – I probably won’t cover anymore on mid/back office but do want to get to other front office areas at some point.
I’m trying get into Goldman Sachs investment banking N.Y. New York. Is CFA Level 3 an absolute must for me? Also my GPA is 1.79. Do you think I should round it down to 1.5?
I’m just kidding. I know how much it bothers you when someone asks you that so I thought it be funny to post an exaggerated version of the questions.
Thank you always for such wonderful information. I hope you have a good time writing them as much as we have reading.
You’re lucky – I was just about to add a rule to the spam filter that would block any comments with “CFA” or “GPA” in them, but I guess there are legitimate uses for those as well…
THANK YOU SO MUCH FOR THIS ARTICLE!
I was wondering what to make of the “training programs” that prop firms (in Chicago at least) advertise for entry level trading.
Does anyone have any experience in that?
I had my own business and now in process of going back to business school. I did receive a bachelors in phyisics but haven’t had much focus on programming and stuff in a while so slowly getting back to it.
I have the math background with linear algebra and differenctial equations.
But was wondering what other “schooling” i need to focus on.
What makes these company hire you – math skills, programming skills, GPA, finance background, etc…
PART 2 –
I have seen jobs of Structurer – which seems an awesome combination of math/programming and trading/finance.
How common is this position and I can’t seem to find more info about it?
Any help would be appreciated!
It’s a combination of all of those – you may want to listen to the S&T recruiting podcast for more on what banks vs. HFs vs. prop firms are looking for: https://mergersandinquisitions.com/sales-and-trading-vs-investment-banking/
Great website !
I am interested in Investment Banking but especially on M&A , LBO’s etc. The ideal plan is to join IBD of a Bulge Bracket and specialise in M&A before hopefully moving to a PE firm. On the other hand I am interested in becoming a prop trader but am keeping in mind of the restrictions and “ban” on such activity in the US.
How important is the IB = Private Equity and Trading = Hedge Fund as when you look at someone like John Paulson who worked in M&A at BCG and M&A at Bear Sterns yet quite successfully runs a Hedge Fund.
Is it possible to make good money of your own trading in your “face/free time” while working in IBD ? What areas did you work in IB ?
Thank you very much.
You cannot trade openly in your own personal account when you’re in IB – no free time + they place a lot of restrictions on you, you need to clear all trade orders with compliance, etc. At the highest levels there is a lot of overlap between all the areas you mentioned, but the monetary potential is much higher on the buy-side (PE, HFs, prop trading firms) than the sell-side because of the investments vs. commissions issue.
Thanks for your reply.
Is IB or Trading considered more “prestigious, high roller” ? And which brings more respect – when analysing a top IB employee and a top Trader who are both earning good money. Which is more respected ? And keeping aside connections within the firm etc based strictly on area of work (both are exceptional talents)
What area of IB were you in if you don’t mind me asking ?
Depends who you ask… these days IB at a bank is better than trading at a bank because of all the new regulations. But the money at hedge funds trumps both of those.
Keep in mind that to the outside world, everything in finance is the same so “prestige” has very little effect on your life.
Hi Brian, hi zeke,
i am an intern of a big european bank (gvmt bond trading) that has recently announced a job cut. however, it has changed the CEO, so things may change in 3 months.
traders here are quite old (in continental europe you can’t just fire people if they do not make “the number”). they are divided IMHO b/w successful traders (rich and talented, they make 3/4 good trades a day and they’re done) and old (sick) fogeys.
To get to the point, I have a very little chance to be hired.
I assist a trader with low teaching skills; other traders are always busy. When they are not busy, they do not need my help and they talk about soccer, expensive cars, big houses (topics in which unfortunately i do not feel comfortable).
What should I do to “leverage” my internship?
Thanks a lot
Ultimately each desk has its own culture.
Unfortunately, the structure of the system is not set up to breed you as the firm’s next top trader. Traders usually have little incentive to teach you everything they know. In fact, if they teach you everything they know, it indirectly affects their own job security and/or power over the group portfolio–especially in an environment that has announced job cuts.
The best way for you to leverage your internship is to develop good relations with all the traders and possibly their superiors. You mentioned the soccer talk and expensive cars—well, hate to break it to you, but we all know a large percentage of the job is not about trading. Developing rapport, being a good fit, and generally exhibiting likability are perhaps more crucial to getting hired in your position than is having the next best trade idea.
There was a previous article that might be relevant for you: https://mergersandinquisitions.com/middle-office-to-sales-trading/
It’s about a reader who transitioned from Middle Office trade support to the front office trade position. Although not common, you can learn from his experience.
To quote a line: You can’t be annoying about it or constantly pester them – instead of asking about models and bottles on Thursday nights, go and say, “Hey, I noticed you were doing X, Y, and Z, but I think if you made your trades this way instead you could make a lot more money.”
Ok many thanks, I’ll try and I’ll post you a feedback :)
I have noticed you always answer, you are really admirable!
Hey Brian – I have a question unrelated to the article. You’ve mentioned in other articles before that networking with analysts helps because they are the ones that choose your resume from the hundreds available. For the Summer Analyst positions at most banks, once you have been offered a position all of the groups (i.e. industrials, healthcare, etc.) make a presentation for you and you choose your top picks.
Let’s say you know a person in the industrials group, however, he’s not the one initially going through your resume because your not applying to a specific coverage group for Summer Analyst positions. Who chooses the resumes for SA positions? How can you use networking to help you break in for this case?
It’s usually based on the location you’re applying to rather than the group… so most likely it will be office + your school that determines it. But it is somewhat random so you can’t just rely on 1-2 people.
I noticed that a lot of your guest commentators who worked in trading are of asian origin. As an asian myself, I can only guess that our stereotypical prowess in geek math must have paid off somewhere, if not in the gym or dating floor.
Just wanted to say that as a broker or sales trader in cash equities you could get away without being a math whizz, but FICC and derivatives sales are another ballgame altogether.
That’s true, those are more complicated math-wise. I think the Asian issue is more related to most of my friends and co-workers being Asian… just an artifact of being in California and then Asia back-and-forth.