Sales & Trading Part 1: Is Sales & Trading a good career?

Every now and then, there are college students or experienced hires who ask about Sales & Trading, and express interest in applying for a position – the name of the job sounds alluring. You get paid to be a stock trader, with the possibility of making millions of dollars in bonuses at the end of the year. Even if you don’t make the cut to become a trader, you can settle as sales and visit all the Michelin 3 Star restaurants in the city! Either way, this sounds like the dream job for students fresh out of school. For those considering a career in sales & trading, I’ve compiled a few thoughts below that may help facilitate your decision making process and shine more light into what the job is and is not.

As a starting point, let me briefly describe the job – The traditional trader job that you might read about in the media or books where 25 year old traders are making millions of dollars is slightly outdated. 12 years outdated to be precise. The 2008 Financial Crisis officially marked the end of the so-called ‘Prop trader’ who used the banks balance sheet to take positions, often dangerously concentrated and leveraged bets. The crisis sparked national outrage, and regulators were quick to implement the ‘Volcker Rule’ which all but ended this lucrative role that many ambitious people in Wall Street aspired towards.

Traders nowadays are either “market makers” in products with no regulated exchange to trade the product (e.g. FX, bonds), or agency traders who execute orders in exchange traded products such as Equities. “Market Makers” require a sales who can quote a price on a product (see here for bid-ask spread), which is then traded by the trader who ultimately decides the price to trade at. These traders manage the risk with the product, and make money by buying and selling through the bid-ask spread. The main risk that leads to a spread is liquidity – if the product is liquid, bid-ask spread tends to be low and you try to make money off volume. If the product doesn’t trade that often, you will likely quote a wider bid-ask spread to account for the risk (liquidity) in proceeding with this trade.

The fixed income desks mainly consist of “market makers” – however, equities is mostly traded on an exchange (NYSE, NASDAQ), so the traders are mostly there to execute orders. There used to be hundreds of traders in a trading floor manually, but as the main KPI for the execution trader is how well they can execute an order and technological development, many firms have decided to replace these traders with computers who can trade faster, cheaper & with less error. The firm makes money through commission per trade, so the more trades the more revenues. Equity sales mainly manages the relationship with the portfolio managers & tries to get them to trade with your firm. Used to be more ideas driven, but is now more admin + introducing clients to platform & range of products the firm has to offer. I’ll write an article with more detailed description of the job in the near future.

So with that in mind, here are a few factors that I’ve summarised in a job(along with the description) to help you decide whether this will be a good career for you. Obviously, you need to know what you want and what I think is a good career path maybe a horrible lifestyle in your mind, so you should ultimately make your own judgement. The factors are:

1. Pay
2. Stability
3. Work/Life Balance
4. Career Progression
5. Overall Industry Prospects

The above is in no particular order, but these are the ones that come off the top of my head as most important factors in those considering a job in the field. These are just my personal observations, but I will answer below the following above & the relationship with a career in S&T:

1. Pay – the pay is decent relative to the national average, but don’t expect to be making millions in your first few years, or ever in fact. Pay is in structural decline as a result of structural decline in the industry (as will explain below). Bonuses are getting cut every year, and if you work for an European bank apparently keeping your job is now the new bonus. Expect recalibration in standards each year (not upwards) and pay cuts
2. Stability – this is not a stable industry, and job cuts are the norm. An entire desk being laid off is quite normal in many smaller players, or even the entire division (e.g. Deutsche Bank’s equity division in 2019). If you want relative stability, go to an US commercial banks Investment Banking arm. Their main business is commercial banking so sometimes treat the Investment Banking division as a hobby unit (I’m only kidding here but you get my point)
3. Work/Life balance – this is a lot better than investment banking. For most roles, you will have a full weekend & hours are generally market driven. Most days are 11-12 hours, with a variation of 1-2 hours. Note you will probably have to arrive early and if you cover overseas markets, work in very strange timezones. There’s also some degree of stress when you have annoying clients.
4. Career Progression – if you’re young and just begin, you will still have some exit options and can probably lateral to another industry or move to the buyside. However, the longer you stay, the more expensive you become & there aren’t that many transferable skills to other industries the longer you work. The firm also makes it illegal for you to take any projects you’ve been working on at the firm to other areas, so your best career progression in S&T is to continue working your way up in the bank hierarchy. You’ll start off as an analyst, get promoted to associate in 2-3 years, then Vice President in 2-3 years if you don’t screw up majorly in the process. The average age of the floor is now approaching 35-40, so expect few young people to actually compete with you. Most young people leave the industry because of points 1,2,3 and 5. Beyond VP is Executive Director, where you have to show some revenue generating ability. After that is Managing Director, where maybe 1% of analysts will be promoted to this role, and is becoming increasingly more difficult year after year – will likely take at least 15 years to reach this role if ever, and pay is shrinking as well even in these top roles. You must really love this job to make it this far.
5. Industry Prospects – after 2008, S&T has been in structural decline, and this is true regardless of how campus recruiters try to paint the job with a bright future. Revenues have peaked in 2008, and the digitisation of trading has put severe pressure on commissions. Headcount is likely to shrink each year and if you’re not tech savy, it’s getting tougher and tougher to stand out. Fixed Income is also in the process of becoming automated, which means headcount will continue to suffer in the coming years.

So to answer the question is sales and trading a good career path, the answer is, it depends. Many people come to me focusing on a few aspects of the job with some severe misconceptions, so hopefully the above will help clear a few of these misconceptions and allow one to come up with a better understand and judgement of whether they want to pursue a career in S&T. Do comment below if have any questions, will try my best to answer.