Trading Vs. I-Banking
I think it's important for us to be clear about the pros and cons of each of the two career paths and I'd like to consolidate some of the opinions that have been floating around about this topic on this thread.
Here's one impression I've gotten from speaking with people on both sides of the isle: Banking is for the typical ivy-league pencil-pushing over-achieving workaholic, while trading requires a somewhat less quantifiable "it factor" that typically manifests itself in the form of uber-competitiveness and the ability to withstand tremendous pressure.
So in an effort to stimulate a healthy flow of information, I'd like to ask anyone with any input on this topic to contribute their $.02. Some of the questions I'd personally like to see answered here are:
- What do recruiters look for when hiring bankers vs. traders? What skills, talents, likes & dislikes are a good fit for what job?
- Who typically makes more money between the two over the long run?
- Which career path typically offers better work/life balance, satisfaction and flexibility?
- What are some of the top locations for each of the two?
- Who gets more tush?
Also, when answering, please make an effort to distinguish between the various kinds of trading, i.e. prop, S&T, etc. and different banking departments.
Most of our users highlighted that they liked the competitive nature of trading as well as the meritocracy of trading firms.
All I've ever wanted to do save for professional sports was to have been a trader.
I work at one of the top tier BBs (albeit in the BO, I'll get to the trading floor eventually or leave the street all together), and salary wise, most market makers (not even the hot shots that are prop guys) seem to have more fun with their job than bankers do, but again my views have shades of selection bias, as I'm only going off of a handful of bankers I know vs. many more traders.
There's risk, but rewards in intelligent decisions (most of the time) is something that draws me and most into it that go into the career. I also believe it was bondarb or revsly or one of the traders on here that said the job may be 24/7 but since you're actively using your brain, (as opposed to cranking out pitchbooks-sorry for the bias), its more enjoyable.
Let me add a couple minor but possibly important points, although these are secondhand info that i've heard/heard:
- a trader is not a trader. Even within BB S&T there are vast differences in terms of income/exit opps/hours/ lifestyle for a trader. Just because you're a trader doesn't mean you can some day move to a hedge fund and cash in on the bonanza. Some traders can never move to a hedge fund and will never make seven figures, simply because of where they started. It depends on what kind of trading, what your product is, etc.
- Of course you can make a lot, but the median is probably pretty similar to the ibanking track. Shit, remember a couple years ago when Blackstone (or kkr?) was offering $1m over the course of 2 years for PRE-MBA associates. So you're 24, here's a million dollars. I doubt that happens much in trading.
- For those who are arguing that a computer can never really replace a human trader, I have seen threads recently where guys on here were concerned about automated trading taking over a particular product or market.
Moral of the story, don't do it for the money. If you're on the fence about whether you should pursue a job in S&T, you're already not cut out for it.
I am more on the electronic side of trading, and I can't really comment on numbers for either side- trading is a lot more driven by personal performance, and if you can establish a track record of making real money for a firm, you can get someone to offer you a percentage of your earnings. Traders on the other hand tend to be from more diverse backgrounds, or really I should say have far more diverse personalities.
Why Investment Banking?
I had experience interning in both trading and banking and choose to pursue banking full time for a few reasons:
- I like the skills that I am developing in banking vs. trading which offers a more limited skill set
- I like the exit opps from banking vs trading at a BB (PE, HF, Corp Dev)
- While S&T is fast paced, your tasks a junior person are very predictable (markets may change by your day doesn't)
- I like financial modeling and analysis
While this may be enjoyable to some, personally I would find that to be a reason not to do trading, and hence a huge factor for deciding between banking vs trading. Trading is much more of a niche career path than banking. Yes it is more meritocratic, but you will only be doing one thing your entire career. I can't imagine being on my deathbed 50 years from now and realizing that my entire career accomplishments can be written in a single line preceded by a $ sign. Yes, banking has more grunt work for a longer period of time, but you do learn more tangible skills that can be applied to other fields. For me, job satisfaction is worth much more than the amount of money I could make.
Compensation Comparison on Wall Street
Our users shared that at the junior level, compensation is fairly similar – however, in trading as you get more experienced your pay is tied to performance so if you are good you can take home large sums.
A trader with real game can knock out in a year what an MB in IBD can over a career. The typical banker, however, will clock hundreds of thousands a year after a while, no matter what. No such guarantees in trading.
Who typically makes more money between the two over the long run?: The median salary (and the correct answer) is probably the same for both professions in the long run. Too many people on this board think that 20mm+ traders are found everywhere. In the short run, bankers make more.
In terms of compensation, a good trader makes a LOT more than a good banker for the simple reason that we are getting a % of our PnL and banker pay is pretty much a fixed bureaucratic ladder system. Being a trader is a TRUE meritocracy and you eat what you kill and if you can't kill, well then you go become a banker or flow trader. In my firm, we get paid 40% of our PnL once you make a trader once you make it out of the trading assistant program.
Since banking is more bureaucratic, it's probably easier for people to keep their jobs as a banker b/c as a trader, nobody cares if you did great work analyzing and building out spreadsheets if you can't translate that into PnL.
Also, bankers may make more at the junior trader/analyst level right out of school but that's because:
- We are letting you see our proprietary strategies in exchange for you just doing our PnL and bitch work so there's no reason for us to pay you a salary but since we know you have to pay rent, we do
- The amount you will learn just by being around successful prop traders should be enough compensation; you are learning to make money, not make stupid powerpoint presentations and kiss ass although we do appreciate it very much. After a while, you can go anywhere and make that money (usually after a junior trader program is done) so firms have to start paying you what you are worth or you will go somewhere else.
Check out our Investment Banking Industry Report to learn more about compensation in the industry.
What Do Recruiters Look for When Hiring for S&T or IBD?
User @BillyRay05", an asset management research analyst, shared advice about what recruiters are looking for:
What do recruiters look for when hiring bankers vs. traders? What skills, talents, likes & dislikes are a good fit for what job?: Recruiters want bankers generally more polished (eloquent) and their traders with raw mental ability (that's why engineers do well). The trading/athlete phenomenon is due to the pressures on the job- pressures that athletes are familiar with. Nevertheless, both groups like pedigree and intelligence, and my desk is filled with Ivy Leaguer's
What Is the Work Life Balance on Wall Street?
Generally speaking, the traders work less hours in the office but will often be thinking of their portfolio outside of work. Bankers on the other hand are working almost 24/7 in the office.
Which career path typically offers better work/life balance, satisfaction and flexibility?: This depends on your personality. One forces you to work 100 hours a week on BS models while making your life pretty miserable. The other forces you to be at work at 6:30, forces you to work 70 hours a week and stress out the remainder of your free time, making your life pretty difficult. One isn't easier than the other. They are just really different.
I work as a prop trader on the International desk of a prop trading firm in NYC and I went to a target school so a lot of my friends are bankers...only a select few became traders. Personally, I only work 40-45 hours a week usually from 8 am to 4:30 pm and sometimes I'll stay late if I want to look into new ideas and build some things out. However, when I was a trading assistant/junior trader, I did work more hours just because I wanted to be the first one in the office and the last one out (as a rule of thumb, you should always be there when your superiors are there to support them and more importantly, learn) Also, I do find myself watching CNBC and reading bank research when i get home just for my own personal knowledge and I like to hear other people's opinions. When I am working though, I am sprinting the whole time unlike bankers which are pretty much running a marathon.
Each has their own misery, hours in trading are generally better, though as markets are becoming more 24x7, that is not necessarily true in all cases.
Exit Opportunities for Trading and Investment Banking
The exit opportunities are different for both professions. IB analysts typically go onto PE, a hedge fund, or business school. Working in corporate development or start-ups are also options. Traders basically need to stay in trading either for a bank or for a hedge fund.
Banking: Lot of Hours, Compensation probably a little better than trading starting off but not "real" difference (10-20k differences don't really matter when your starting off), Work involves doing a lot of models all day and night long and preparing to sell banks services to clients, exit opportunities - hedge fund (surprisingly alot of hedge funds other than specifically quant oriented probably will be your suitor) / PE / Anything else you really want to do. 2or3yrs and most likely you will have to get your MBA (costly)
Trading: Hours are less but early mornings (ie. 6-7am). Very intense trading during the day.
Compensation v. similar to banking although depends on performance of your group. Exit opportunities? continue trading, go to a hedge fund, business school (not necessary). Opportunities are obviously a lot less but if you like trading, i would argue you want to keep doing the same thing.
Read More About Trading and Banking on WSO
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- Hedge Fund Careers: Getting A Hedge Fund Job Out Of Undergrad And Beyond
- Investment Banking Interview Questions - A Comprehensive Guide
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