Trading vs. Research

What are the main differences in personality, skills, lifestyle/ balance, exit opps, compensation, and predicted future of each field (1-5 years) ?

Also, in terms of on the job, which would you say presents less repetitive day to day work? more creative thinking? more need to grow your knowledge base?

I realize I might be able to find some of this by searching but I don't think much of it will provide a contrast between trading/research.

I'm personally at a cross roads as to which path I want to follow and which I should focus on trying to improve my knowledge/skills in with just one year of undergrad left.

As for my own idea of where I'd fit based off the little knowledge I have of each area:

RESEARCH

Pros:
- I love researching for information
- I enjoy building excel models
- I love trying to forecast/predict
- I'm an introvert who enjoys to sit down and think
- A future career in investment management would be my ultimate goal.

Cons:
- I do not enjoy writing. (well, atleast I tend to take a while to think of things to write)
- I read quite slowly. (not sure how much reading vs. scanning I'd be doing)
- Sticking to one sector and analyzing balance sheets seems like it would get pretty boring. (I enjoy to constantly be learning new things/ improving my skills)

TRADING:

Pros:
- many products (specifically FX probably) force you to have a macro view and constantly be up to date on world social/ economic news.
-I feel there would be more room for continual learning as there are so many methods to following each product whether techinical/fundamental and I'd constantly have to adjust my outlook.
- Seems like it would be exciting on the job and provide very good hours.
- Since comp/ performance is completely up to your ability I think it would feel less political and more entreprenuerial
- I would like to get into investment management eventually. (more for managing a portfolio of investment though)

Cons:

  • I'm an introvert who tends to focus best in quieter environments. (I do have good social skills though)
  • Flow trading sounds much less interesting/exciting than principal.
  • I tend to be an emotional person. (I tend to do well in hold-em, but when I lose to a bad hand I have been known to start taking stupid risks. Yes, Leeson style)

As you can see I have some very bad habits/skills that I feel might prevent me from doing well in both fields. What is everyone's take, whether on the various points I related to each profession (not as important, etc...) or whether people are able to change any of them easily on the job?

 

From what you have written, I feel you would be more suited for research.

As a trader (and most analysts get placed in traditional flow desks), you learn and gradually understand HOW things trade and where the liquidity is, while keeping the fundamentals in the back of your mind. I view traders as synthesizers of information (from research, sales, clients). Given this information, they make a market that expresses their view, and actively manages their risk.

As a research analyst, you dig a bit deeper into the fundamentals: the WHY, rather than the HOW. A sell side publishing research analyst spends 1/3 time doing the analysis + reading to beef up knowledge, and 1/3 coming up with trade ideas (and sharing these with traders), and the last 1/3 of the time talking to clients. Research is more sell-sy than people realize. You dont just sit in a cube and crunch numbers all the time. You spend a good amount of time talking to clients, answering their questions, and calling up your contacts in the industry to get an edge. Equity research guys often sit in a cube. But most credit research folks sit on trading floors (i know this is not the case in JPM) and communicate with traders a lot. Also keep in mind there are other roles in research besides equity and credit, there are also economic, fx, commodities, rates, technical analysis, and strategy research teams.

You mention that you would eventually get into investment mgmt, I think research would build up that skill nicely for you. Also given your personality, looks like research would be a good fit.

To address your concerns:

1) on writing: i know equity research guys write a lot, but all other areas of research (FICC) write significantly less and more succinctly.

2) sticking to one sector: you do that too as an equity or credit trader...the TMT high yield trader or the food and beverage equity guy.

I think the ideal job for you is "desk analyst". these are roles within Sales and Trading. but you basically serve as internal research analysts on a trading desks. you do not publish at all, rather you focus on doing analysis and coming up with trade ideas for your traders. very minimal writing. and you get to cover a wider range of industries (perhaps multiple industries) as you don't dig super deep into each of them.

 

Really appreciate the advice.

I was figuring Research would probably be better suited for me aswell. Can see the Desk analyst position fitting perfectly.

Only problem is I figure that comprises a very small amount of positions. Also, I have read those type of analysts often either have significant experience or a ph.d

I also think working as an analyst on the buyside would be favorable. I certainly prefer having to communicate all of my research rather than having to write up 30pg. + reports

 
Best Response

yea desk analyst positions are limited in a S&T program. but at the same time, not too many people go after them, so if you pursue them hard you should get them.

lots of desk analysts are needed in the distressed credit space, and ABS space, coz things there are relatively illiquid and complex and lots of analysis is needed to come up with a bid. in my bank, there are also desk analysts who work with cash equity traders side by side. they spend good amount of time to generate prop ideas with relatively short time horizon (a few days to weeks) and traders may put on the trades if ideas make sense to them.

not true that these positions require significant experience or phd. they all take first year analysts (credit, equity and ABS). you will work under someone more senior.

well, everyone would love to be an analyst on the buyside haha.

 

Can anyone further explain the desk strategist/analyst role? (is their research more short term and based around trading ideas rather than investing ideas?)

What would a typical career path be like for the position?

What's the best way to try and get in the strategist group?

  • I figure that it would actually be better to focus on just trying to prepare for S&T rather than research/IBD. For instance, I should be reading books about options/futures/technical analysis + Macro indicators rather than if I was preparing for a traditional research role where Security Analysis and other valuation books would be more valuable.

I have to admit that after doing some more digging on what research analyst position responsiblities are, the more discouraged I become. While I admit much of it revolves around equity research positions, the descriptions just seem so completely divergent from what I originally believed research would involve. I continue to read that good writing skills is a must and was also surprised by how salesy the position.

Honestly, from everything I read I felt the entry level positions were nothing more than IBD analysts with a few less hours but much more writing. Then, when you are promoted to the coveted analyst position, it seems to revolve around client interaction and sales. (to be fair much of this is from the vault guides)

Now if you would have asked me the two things I would least like to do in my future job, it would have been both Writing and Sales. While I am more than fine socializing with people and explaining concepts/ ideas, I have always hated the concept of selling to people.

To possibly give you a better idea of what type of person I am:

  • have taken the personality tests and came up with INTJ and the most applicable profession being Engineering/Sciences/Finance.

  • Unfortunately, while I am great with numbers and always did well in math classes, I stopped taking them after I passed my calc ap test in highschool because I had the common ignorant belief that advanced math had no application to the practical world. Thus, with just one year left of undergrad, I'm just now realizing it might have been helpful to take some more advanced level math classes.

  • I really debated going into academia for a little while, before realizing just how much research you have to WRITE in order to get a job as tenured professor at a decent college, not to mention for just finishing the Ph.d. (I loved the idea of researching and coming up with my own theories of the economic/financial world and would really enjoy trying to mold my teaching style best relate my knowledge to students. The writing would kill me though)

  • I just took 45 freaking minutes to type this up. : (

 

Can anyone further explain the desk strategist/analyst role? (is their research more short term and based around trading ideas rather than investing ideas?)

would be a mix of short term and long term, trading ideas and investment ideas.

What would a typical career path be like for the position?

Move into trading possibly. Some will probably go to buyside as analysts/PMs.

What's the best way to try and get in the strategist group?

They do take first year analysts, if you have a rotational program, try to rotate on these desks...

 

Are you a morning person? If not, trading might not be a good fit, while ER might be a better fit (waking up at 5:30 am versus 7 am)

Are you good at writing? If not, ER might not be a good fit - in ER, you spend a significant amount of time debating ideas and persuading people to see things your way - after all, a stock price only goes up if people buy it.

Where do you see yourself after 2 years at a bank? Do you want to be doing research, writing reports, talking to company managements, and deciding where to invest based on financial reports/data/interviews, or would you rather have a more quantitative approach to things as a trader?

Both tracks will get you into opportunities to make a ton of money, though the upside on trading is significantly higher, the downside is that you totally suck and have no exit opps. In contrast, research is a bit lower risk, lower reward, at least until you hit the buyside at a senior analyst level.

Feel free to add/argue anyone.

 
big unit:
Are you a morning person? If not, trading might not be a good fit, while ER might be a better fit (waking up at 5:30 am versus 7 am)

Are you good at writing? If not, ER might not be a good fit - in ER, you spend a significant amount of time debating ideas and persuading people to see things your way - after all, a stock price only goes up if people buy it.

Where do you see yourself after 2 years at a bank? Do you want to be doing research, writing reports, talking to company managements, and deciding where to invest based on financial reports/data/interviews, or would you rather have a more quantitative approach to things as a trader?

Both tracks will get you into opportunities to make a ton of money, though the upside on trading is significantly higher, the downside is that you totally suck and have no exit opps. In contrast, research is a bit lower risk, lower reward, at least until you hit the buyside at a senior analyst level.

Feel free to add/argue anyone.

RE: research is lower risk and lower reward

I completely disagree with this. If you are an excellent research analyst, it is certainly a high reward career path. The wealthiest investment professionals in the world are typically hedge fund managers with research backgrounds -- not trading backgrounds.

RE: no exit opps in trading

Trading is certainly an entrepreneurial career, and successful traders are usually self-starters who are comfortable with the high risk/high reward aspect of the game. If you are unsuccessful in this field for whatever reason but you still have a self-starting personality, your next move usually isn't gonna be actively seeking employment -- it would more likely be to pursue an entrepreneurial venture(s) of some sort.

 

I meant that in the course of a 2-year stint, you are taking less risk as a research analyst and you also earn (a slight amount) less

Of course the exit opp of ER includes PM, which is extremely high-reward, but during the course of the actual 2-year stint I would stand by my argue that you are taking less risks

However, at many banks 1st years make the same regardless of whether they are in S&T or research, so maybe research is less-risk same reward, which means that if your time horizon in finance is one year research is the way to go lol

 

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