Many financial services positions are critical to the smooth and efficient operation of capital markets. Most big Wall Street investment companies have two roles: investment banking and trading. These vital tasks are expected to provide the majority of money in this situation. These jobs sometimes cross paths in comparable markets, but their duties are very different. Thus, we have made this post on sales and trading vs investment banking to aid you.
What is the Definition of a Trader?
A trader is a financial services middleman that buys and sells equities and other financial instruments on behalf of customers in the capital markets (e.g., stock, commodities, and derivatives markets).
Flow Traders, who work with client money, are one of the most prevalent traders. This is in addition to agency traders, who serve as brokers for customers and conduct transactions on their behalf.
Other traders work as proprietary traders, making deals on behalf of their companies or taking the other side of a trade when neither buyer nor seller is accessible.
A trader’s responsibilities do not end with buying and selling. Researching financial trends and changes, examining reports, and evaluating market data are all part of the job. Traders come from diverse of life and have a wide range of educational backgrounds.
Many companies demand that day traders have a bachelor’s degree in finance, mathematics, or accounting. There are no official academic qualifications for becoming a trader, though. The FINRA Most trading businesses require series 7 and 63 licenses.
What Is the Role of an Investment Banker?
Investment banking is a branch of the financial services industry that assists customers in raising money or capital via investments. Investment bankers are like traders, link buyers, and sellers.
They participate in the bond and stock markets, much like traders. Furthermore, the responsibilities of investment bankers, on the other hand, have been enhanced. They bring buyers and sellers together via mergers and acquisitions (M&A).
When they sell a firm to the public in an initial public offering, they may raise money in the capital—debt (bond) or equity (stock)—markets (IPO). This is also valid regarding reorganizing established businesses.
Investment bankers come from diverse backgrounds. But most have a solid mathematical basis. Many also have professional degrees, such as an MBA with financial, math, or accounting majors.
Many professions and employers of investment bankers demand formal training and the fulfillment of qualifications to work as an investment banker.
Investment Banking vs. Sales and Trading
We’ve been asked about the differences between sales, trading, and investment banking for years. Many people are curious about both areas or are undecided about which they prefer. So, here’s a comprehensive comparison in one place:
You work as an intermediary or broker in investment banking and sales and trading. You assist companies in raising financing or equity by facilitating transactions.
This is in addition to helping an institutional customer with stock purchases and sales. And on such transactions, you are paid commissions.
The disciplines, however, are substantially diverse beyond that high-level categorization. Large, corporate-level transactions are the focus of investment banking.
Buying or selling an entire firm, as well as reorganizing a corporation, are examples of this. This is in addition to assisting a business in raising financing or equity to fund a significant expansion or acquisition.
The transactions in sales and trading, on the other hand, are substantially smaller and are placed by hedge fund and asset management customers who seek to trade stocks, bonds, foreign exchange, derivatives, and commodities.
Salespeople cultivate connections with these customers and urge them to trade. Traders conduct deals by creating markets for customers and obtaining the best pricing.
Traders profit from commissions as well as the bid-ask spread. If securities are bought and sold to form a market, this is the price difference.
S&T experts assist institutional investors in making money and generating profits. At the same time, IB specialists assist firm management in improving, expanding, and adapting their operations.
You’ll need solid academic qualifications, mathematical skills, and “driving in these disciplines.” However, the requisite personalities and skill sets are somewhat different.
Elevated students who can work long hours to finish agreements over months or years are preferred in investment banking. This is in addition to crossing all of the t’s on lengthy papers and presentations.
On the other hand, sales and trade are more on rapid reflexes. This is in addition to a strong “market sense,” the capacity to estimate risk and return, and the ability to make calculated bets.
This helps to explain why so many sportspeople wind up working in sales and commerce. On the field and the trading floor, similar talents are required.
Sales and trade are getting more automated and technologically driven. This implies that talents in computer science and mathematics are more valued in that environment.
Many items are now traded on the internet. All save the most sophisticated and specialized items will ultimately be exchanged electronically.
This results in an exciting mix of roles in sales and trading, with some focusing on quantitative and programming skills. Others, like sales, are more relationship-oriented and geared toward outgoing, social people.
On the other hand, professionals in investment banking tend to be more similar at the junior levels. And there’s not a lot of real math involved.
Longer-term initiatives, such as significant M&A acquisitions and pitching for such deals, are of concern to IB. S&T, on the other hand, is primarily concerned with the “day-to-day” tasks of establishing markets and placing values.
It’s worth noting that not all S&T is concerned with short-term, day-to-day tasks. If you work on the exotics desk and design specialized financial products for customers to trade, you’ll devote more effort to longer-term initiatives.
The more you do it, the more the job resembles investment banking, albeit it’s still distinct since you won’t be working on large-scale transactions.
Career Paths and Promotions
The investment banking job path seems similar to the surface’s sales and trading career route. Analyst, Associate, VP, Director or Senior VP, and Managing Director are some of the positions available.
In both IB and S&T, it takes a few years to advance from one level to the next. This assumes you do well enough to warrant a raise. However, there is one significant distinction: sales and trade. The task does not alter much as you go up the career path.
You’ll begin by supporting the traders, and as time goes on, you’ll be given more customer or trading responsibilities. As you gain experience, you’ll be given more significant and higher risk limitations.
Analysts and Associates are primarily responsible for clerical tasks such as Excel, PowerPoint, transaction monitoring, and pitch book development. Vice presidents devote more time to “project management” and building client connections.
At the Director or SVP level, bankers do much more of this. It becomes almost entirely a sales position at the MD level, with bankers seeing executives and entertaining them to close agreements.
The horrors of investment banking hours are legendary: Analysts anticipate working 80 hours or more each week. They must be “on call when they’re not in the office. They must be “on call.” This is in addition to the unpredictability of pitches and negotiations, which often cancel personal plans.
People sometimes argue that sales and trading provide “better hours” because you work somewhat longer than market hours, arriving before the market opens and departing after it closes.
Because you generally perform the day-to-day job, your timetable is more predictable. And you won’t have to stay up all night closing or proposing multibillion-dollar transactions.
Due to the rarity of weekend employment, you may generally “unplug” for two days every week.
These arguments are correct, but they’re also a little deceiving.
Even if you are out of the workplace for a shorter time, you’ll still need to keep up with news and market occurrences while you’re gone. Also, remember that specific markets, like FX, are open 24 hours a day.
Finally, banks have created “protected weekends” and other programs to allow younger bankers more planned time off. The IB lifestyle has undoubtedly improved as a result of this. So, indeed, in sales and trade, you may live a more regular life. However, just because you’re at the office for fewer hours does not mean the work is “easier.”
Sales and Trading vs. Investment Banking: Tabular Representation
The table below will also aid you immensely regarding this.
|Sales and trading||Investment banking|
|A trader is a financial services middleman that buys and sells equities and other financial instruments on behalf of customers in the capital markets||Investment banking is a branch of the financial services industry that assists customers in raising money or capital via investments.|
|S&T is primarily concerned with the “day-to-day” tasks of establishing markets and placing values.||Longer-term initiatives, such as significant M&A acquisitions and pitching for such deals, are of concern to IB.|
|Sales and trade are more on rapid reflexes. This is in addition to a strong “market sense,” the capacity to estimate risk and return, and the ability to make calculated bets.||Elevated students who can work long hours to finish agreements over months or years are preferred in investment banking.|
|Traders come from diverse of life and have a wide range of educational backgrounds.||Investment bankers come from diverse backgrounds. But most have a solid mathematical basis.|
Frequently Asked Questions
Are investment banking and sales and trading the same thing?
No. The above highlight on sales and trading vs. investment banking will educate you more.
Is it possible to go from sales and trading to investment banking?
It’s challenging, bordering on impossible. The issue is that to fulfil the position of an investment banker, you must have specific core abilities. Time spent in sales and trade will not provide you with this. Valuation modelling is one of the most significant.
Is it true that investment banking is a sales job?
No, it is not valid! Investment banking jobs include both sales and non-sales-related positions. It’s the same with every other service sector.
Is it true that traders earn more than investment bankers?
Across the board, sales and trading remuneration are lower than investment banking compensation. On the other hand, top traders may be able to out-earn bankers.
In conclusion, sales, trading, and investment banking are peculiar today. And if you need more guidance on the differences, the above highlight on sales and trading vs. investment banking will aid you immensely.
I am Lavinia by name and a financial expert with having a degree in finance from the University of Chicago. In my blog, I help people to educate by making wise choices regarding personal investment, basic banking, credit and debit card, business education, real estate, insurance, expenditures, etc.