Trading vs. Investment Banking: Which Career Suits You?

Many financial services roles play a key part in ensuring capital markets run smoothly and efficiently. Two such roles, investment banking and trading, are components of most large Wall Street investment firms, where these integral functions are counted on to provide the bulk of revenue. These roles occasionally intersect in similar market places but have very distinct responsibilities.

What Is a Trader?

A trader is a financial services intermediary who buys and sells securities and other financial instruments in the capital markets (e.g., stock markets, commodity markets, and derivatives markets) on behalf of clients. There are many types of traders, but some of the most common are flow traders, who use client funds, and agency traders, who act as intermediaries and place trades on behalf of clients.

Other traders act as proprietary traders, engaging in trades on behalf of their firms, or take the other side of a trade when no buyer or seller is available. The duties of a trader are not limited to buying and selling; they also include researching economic trends and developments, reviewing reports, and analyzing market data.

Traders come from all walks of life with varying academic backgrounds. Many firms require their day traders to have undergraduate degrees in finance, mathematics, and accounting. However, there are no formal academic requirements to qualify a trader. Most trading firms require their traders to hold the Financial Industry Regulatory Authority (FINRA) Series 7 and 63 licenses.

Key Takeaways

  • The financial services industry is filled with professionals with varying roles, such as traders and investment bankers, that balance the capital markets system.
  • A trader is a person or entity that buys and sells securities and other financial instruments in capital markets on behalf of clients.
  • Similar to a trader, an investment banker helps clients access capital through investments.
  • There are no strict academic requirements to practice as an investment banker or trader, although some employers establish minimum education standards for employment.

What Is an Investment Banker?

Investment banking is the financial services sector in which professionals help clients raise money/capital through investments. Similar to traders, investment bankers connect buyers with sellers, and like traders, they are involved in the bond and stock markets.

However, investment bankers' duties are expanded. They bring together buyers and sellers via mergers and acquisitions (M&A), or they might raise money in the capital—debt (bond) or equity (stock)—markets when they sell a company to the public in an initial public offering (IPO) or when restructuring existing companies. 

The background of investment bankers may vary significantly, but most, understandably, have a solid mathematics foundation. Also, many hold advanced degrees, such as an MBA, with concentrations in finance, math, or accounting. To work as an investment banker, many professionals and employers of these professionals require formal training and the completion of continuing education requirements.

Trader vs. Investment Banker

 

Traders

 

Investment Bankers

Develop relationships with clients cultivated over a short time span, after which trades are usually quick to develop and execute

Work on deals where it may take months or years to develop a relationship and get the deal done

 

Typically are at their trading desks very early in the morning prior to the market open and don’t leave their desks until the markets close (but usually don't work after the markets close and on weekends and holidays)

 

Work extremely long hours, including weekends and holidays

 

Need to have a keen understanding and reading of markets and patterns. Described as bold and decisive, with natural instinct about how the markets work and which way the market will go

 

Play a dual role of relationship builder with good interpersonal skills and a financial wizard who is able to construct a plan that is financially astute and often creative, and tailored to the client’s needs

 

Specialize in one asset class (most typically, stocks and bonds) but are also involved with derivatives in the commodities markets (such as wheat or oil) and in currency markets

 

Tend to specialize in one area and operate within their expertise

 

Need to be mathematically inclined

 

Need to be financially intelligent with a strong mathematics background

Bottom Line

Both investment bankers and traders work in stressful environments in which an enormous amount of capital is at risk and the overall firm counts on the fees to grow revenue. Although closely related and within the same financial services industry, each has a distinctive role and requires different skills and personality characteristics.