Banking versus Trading - Did a summer in S&T

Some Unknown's picture
Rank: Baboon | 113

First of all, bear with me. I know this question has been belabored to death, but hear me out. This is an alternate account of a relatively prominent user on this site .. and for particular reasons, I'd like to keep my identity safe.

Background:
I summered in S&T. It has gone well. All indications are positive so far, and I anticipate good news. I have the opportunity to move laterally to IBD for a full-time role, however. This is a tough decision, and I'd welcome some input. I recognize that I'm young and I want a fact check on my assessment so far.

Trading:
(Cons)

  • At the junior level, you need to put time in before getting your own book. You might be as far as 3 years in before you actually get to trade.
  • Electronization is changing the industry, arguably for the worse (fewer seats left for humans).
  • Regulation is crippling sell-side trading.
  • You define yourself on a very narrow career path within finance. Trade on the sell-side or get lucky and get snagged by a solid fund if you crush it (for years). Unless you hit the b-school reset button, you're in S&T for keeps, more or less.

(Pros)

  • Work-life balance actually exists.
  • It is intellectually stimulating. You think, develop a position, learn to defend it, and ultimately deploy capital based on your convictions.
  • It's exhilarating.
  • The hierarchy is flat. Titles (relatively speaking) mean shit, you can sit next to an MD and he's barely 10 years older than you and you're still judged on the same merits: PnL.
  • Mentorship exists. There is a training program, people buy into you, and the workplace is that much better for it.

Banking:
(Cons)

  • Your quality of life is nonexistent. It's a lie and everyone knows it.
  • Your worldview gradually changes as you get beaten into a pulp by the two-year analyst stint.
  • The work is menial, trivial, and not engaging. You bind pitchbooks, obsess over Powerpoint, and master Excel like no one ever deemed (or hoped) possible.
  • The hierarchy is stifling, it is a dogshit world of bureaucracy and saving face and kissing ass all the way up the chain of command.

(Pros)

  • Your exit opportunities are unrivaled. PE, HF, Corp Dev, b-school, startups, take the Associate promotion ... broadest potential down the road.
  • No one will ever question your work ethic again. You'll never think anything is as bad as those two years of hell. Anything is a breeze after 90+ on the regular.
  • You get paid better out of the gate, particularly in a down market like this (and what we'll likely have for the next half decade or so). Your bonus is closer to your full salary figure, whereas in trading it is peanuts until you can get paid by PnL.

Comments (20)

Aug 3, 2012

I think you really answered your own question, and the final decision is your own.

Aug 3, 2012

Did you like it? No? Then do something else.

You did like it (all things considered, including your group, your actual responsibilities, etc.)? Then take the offer, assuming you get it.

Aug 3, 2012

I have a question with trading. do all firms similar pay for Trading or is there quite a range? And what % of people just epicly fail at trading and suicide?

Aug 3, 2012

Hows about going into something like ECM where your are in IBD but still have a markets focus? This may be worth looking into.

Or ER?

Aug 3, 2012

First off, thank you for all the responses. I'm truly humbled and appreciative of the in-depth responses.

cujo.cabbie:

Hows about going into something like ECM where your are in IBD but still have a markets focus? This may be worth looking into. Or ER?

No interest in GCM. That's straddling. For one, I don't have that option on the table right now. Two, if I take that lifestyle, I might as well get paid commensurately and get IBD money. ER just does not hold any appeal for me. Again, it's not IBD but close, and close only counts in horseshoes and hand grenades.

SirPoopsaLot:

Yes, I understand that. Exit opportunities are about the ever elusive but oh-so-lucrative "next step." Got it. Your comment about hedge funds is precisely accurate, however. I'm interested in exactly the type of strategy that a trading background usually bars you from -- fundamental, value-driven shops. Perhaps if you sit in a credit seat at a major bank for a couple years, get a book early, and crush it, after 4-6 years you might get snapped up by a Brevan or Centerbridge or PIMCO etc. Way easier to get access to both equity and credit (or multi strategy) funds after 2 years in a strong IBD group ... with potential to move around.

Also believe in that learn/earn slogan. Instinct leads me to think that learning may happen on a trading desk but earning may not come thanks to circumstances beyond any human control, whereas the benefit of IBD is a two-year experience you can always fall back on. It serves as a basis for you to lateral to any role within finance: upward within IBD, HF, PE, VC, corporate, even S&T. I will take you up on your offer and message you over the weekend.

mperit01:

Thank you. As I said, I am very interested in the markets and have identified a longer-term interest. Odd how banking seems more likely to get me there. I do agree with your assessment of the industry and think it is spot on. In my opinion, given my career interests, there is a ton of downside risk to a role in trading. IBD is a risk-averse move. I don't consider myself risk-averse, but all things considered, seems wiser.

colajo01:

I say go with whatever your passionate about and can see yourself doing-- if your good at and enthusiastic about your job, the money will always follow.

Could not agree more. I feel I'd be happy in either role, one for the environment and the other for everything it brings afterward.

puax:

Agreed, agreed, agreed. Duly noted. Notice my quandary.

Aug 3, 2012

Given the facts / opinions you have presented, I would be willing to bear two years of 90+ hr weeks for a near-term future of flexibility, stability, and options. I think B-school can definitely reset your interests in case banking doesn't work out for you. Unless you can really guarantee yourself that you'll be making millions through trading within a few years, stability is by far the most important thing you need in this kind of job market.

Even though the IBD work may be repetitive and boring, what comes after (PE, B-school, etc) is what really lets you gain insight and becomes interesting (a IBD-> PE post about a month ago mentioned what PE was like on the other side). We all have to go through a phase of menial and seemingly unnecessary / unimportant work to get to the good part.

Congratulations on your offer to lateral into IBD. I'm sure if you really like trading and feel really confident, then you can't go wrong with either. But if your not completely confident, especially with a decline (?) of trading, then job security and exit opps is definitely the way to go.

Good luck.

Aug 3, 2012

It seems to me that people in IBD are focused on exit opportunities only because almost everybody is focused on leaving.

I subscribe to the 'learn in your 20's, earn in your 30's' model. You shouldn't be making the decision based on your starting comp level, you will think the differences are meaningless in ten years.

If you want to go the hedge fund route, being in capital markets is fine. Keep in mind, you will likely develop a niche and you won't likely be in a long/short equity hedge fund, especially a fundamental based one.

I work in an Asset Management/hedge fund firm and virtually everyone here has a capital markets background. Everyone here will be in this industry for their entire career...I don't think anyone has a problem with that. If you are passionate about it, why would you want to leave?

So, for me, the question boils down to: what is your passion or do you even have one now?

Aug 3, 2012

If you can't see yourself being a trader long-term, go with banking because you will have a lot more options after a couple years of hard work.

Aug 3, 2012

It is tough to tell somebody else what to do with their life, but since that is essentially what you asked of us - I will dive right in.

If it is Trading vs. banking, I would do banking for sure. Full disclosure, I work in ER so this is a pretty neutral opinion. I personally just don't see the appeal of trading (currently), volumes are unbelievably low, most banks don't even let you hold your own positions over night anymore, there are going to be less human seats going forward, and if that wasn't enough - you have almost ZERO exit opportunities. You better be damn sure that trading is what you want to do for the rest of your life, because it is tough to move once you are entrenched as a trader. The b-school option is always there, but the older you get - the tougher it is to go back. There are some traders at my firm that got laid off and it is scary how few of options they have. And they were not bad traders, there just isn't enough volume to support the current staff levels. They are married with kids, in their 40's, and there just aren't a lot of people hiring traders right now, most are trying to get rid of some if anything. They really don't have a skill set that can translate to other jobs (PE, HF, Corp Finance). Your life would be horrendous if you did banking for a while, but at least you would have some options down the road. And although I agree with a previous poster that money in your early 20's doesn't really matter that much - most of us live a similar lifestyle whether we are making $50K or $150 at the age of 23 - I will say that if you do banking and then go to business school, that extra salary will come in handy with bills/tuition.

The only caveat to this argument is that it also depends on your firm and your likes. If you really are interested in the markets, and loved your summer internship, then do trading. It will be tough, but I have no doubt that people are still going to make good money trading in the future (just not as much and far fewer people). Additionally, what is your firm better at? If your firm isn't a great bank shop, and the deal flow sucks and the reputation on the street isn't good, then it might be a waste of 90+ hour work weeks because the exit opportunities will not be good and you might find it tougher than you thought getting into business school (good ones at least). If you end up in trading though, I would really try and figure out your move over the course of your first few years, because once you hit your late 20's and beyond, it is EXTREMELY difficult to go back to business school and re-brand yourself, so at that point, you better be pleased with your current career path or the options it will give you in the future.

Hope this helps, I know it was long winded but good luck - enjoy your last year of school too.

    • 1
Aug 3, 2012

It seems like you already made your decision in the description. Don't second guess yourself. Do what feels right to you and what you will be excited to do every day. Why go into banking if you're going to end up hating those first years? Our lives are too short to hate what we do.

"You stop being an asshole when it sucks to be you." - IlliniProgrammer

Aug 3, 2012

PM me if you want as well.

Dec 12, 2012

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Aug 3, 2012

I've been wondering this myself lately. You can't put a price on having a life during your 20s (and IB doesn't really get any better at the senior levels...), but I would be concerned going into trading these days with the increased regulations around prop trading, etc.

Aug 3, 2012

Had to go through this decision recently, so I know where you're coming from.

A lot of people have brought up the obvious points about regulation and exit opps.

I'm definitely someone who likes a fast-paced and market-facing environment, so banking is quite brutal for me. Fortunately I can do well at the corporate finance part too, so if you think you can succeed in banking, I'd say the opportunities justify the hard and slow job for two years.

But I do think in some cases, some people who are drawn toward the markets and a trading type job don't always do well in banking. I'm a big believer in doing what you're good at; I would much rather be a good trader than a bad banker, even in this environment. If you succeed on the trading floor, you can leverage your success to opportunities elsewhere. I've seen bad banking analysts who come out with no meaningful deal experience and have little to no "good" opportunities after their stint. Do what you can succeed at.

That being said, life's a bit trickier than that. Rockstar trader or medium/okay banker? In this environment? A few buddies of mine were ranked at the top of their division in trading yet still got canned. That's a tougher decision.

Aug 3, 2012

I'm a trader at a top shop and my job is fucking awesome.

I can understand why some people prefer IBD. If you have the "slow and steady wins the race" kind of stamina and you're too much of a pussy to put your money where your mouth is (just kidding), then IBD is right for you.

Personally I wanted to do transactions, deals, instant gratification (sometimes) through PNL. Getting beat up by the market and learning from it. Intellectual stimulation not as in "having a unique viewpoint on a valuation" but as in "developing new perspectives on risk which no one has had before and make money out of it". Making fun of carry trades and doing some yourself.

When you get your own book depends on the product. I took me around a year to have PNL responsibility (and the transition is not always clear). It can be much more if it's exotic, but much less if it's very vanilla.

Also I feel like I make more money than bankers because I save more. I have literally 3 suits and never wear a jacket to work. No expensive ties or shirts - no one gives a shit. I never have to cancel plans and lose a booking because an MD wants something done by Monday morning. If I want to fly away on a weekend, nothing prevents me from doing it.

There are cons, I guess. In the middle of the floor the closest thing I have to a window are my 6 screens. I'm chained to my desk and need to post colleague when I have to take a dump. No lunch breaks or anything. Don't be a trader if you smoke. People assume you do drugs and/or have ADD.

Whatever.

Aug 3, 2012
puax:

I'm a trader at a top shop and my job is fucking awesome.

I can understand why some people prefer IBD. If you have the "slow and steady wins the race" kind of stamina and you're too much of a pussy to put your money where your mouth is (just kidding), then IBD is right for you.

Personally I wanted to do transactions, deals, instant gratification (sometimes) through PNL. Getting beat up by the market and learning from it. Intellectual stimulation not as in "having a unique viewpoint on a valuation" but as in "developing new perspectives on risk which no one has had before and make money out of it". Making fun of carry trades and doing some yourself.

When you get your own book depends on the product. I took me around a year to have PNL responsibility (and the transition is not always clear). It can be much more if it's exotic, but much less if it's very vanilla.

Also I feel like I make more money than bankers because I save more. I have literally 3 suits and never wear a jacket to work. No expensive ties or shirts - no one gives a shit. I never have to cancel plans and lose a booking because an MD wants something done by Monday morning. If I want to fly away on a weekend, nothing prevents me from doing it.

There are cons, I guess. In the middle of the floor the closest thing I have to a window are my 6 screens. I'm chained to my desk and need to post colleague when I have to take a dump. No lunch breaks or anything. Don't be a trader if you smoke. People assume you do drugs and/or have ADD.

Whatever.

@puax: I just did an interview with a boutique S&T shop earlier today. What do you trade? Are you at a prop shop or a traditional bank? I feel the same way about the place I just interviewed with earlier today. None of the guys had ties on and just had dress shirts/dress slacks.

Aug 3, 2012

For what it's worth, I am at a very strong bank; unfortunately I can't take the easy route out and go for which branch is more successful.

Aug 4, 2012

Don't want to reveal too much but I'm at a bank in fixed income.

I also think a reason why people know less about trading is that an analyst class will typically have much more IBD guys than traders. Also most people in S&T are not traders.

There's a lot of hype on this website around day trading. That's not trading. While I'm at it, I saw that the word "carry" was highlighted in my post. The link leads to a glossary which states that "There is also the idea of currency carry. The logic behind this concept is that one can borrow in a low yielding currency and then convert it to a higher yielding currency to earn the carry. A fantastic illustration of this is when the LTRO's were announced in Europe in late 2011 / early 2012, banks could borrow Euros from the ECB at 75 basis points (0.75%), convert the Euros to dollars and buy US Treasuries which pay 2% and, assuming the exchange rate was unchanged, earn 1.25% risk free."

First, that's misleading/not true. Second, any seasoned trader would simply see this as being massively long dollars, short euros, not doing a carry trade. I've found that interns and new hires often have preconceived ideas about trading/risk and need to completely get rid of them before becoming any useful. Perhaps those who do best eventually are the ones who had no clue to begin with.

Aug 4, 2012

Based on my narrow understanding now, trading on the sell-side is very different from what most people perceive as trading. While taking directional delta bets do exist (most of the times being shoved into one), it's more about taking an indirect bet on volatility, shape of the curve, or some second-order/less known factors for the sake of mitigating damage caused by the flow. That's not to say that following the client's side doesn't exist though...

Dec 12, 2012
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