Difference between trading and investment banking?

jwblue
Mon, 21 Feb 2005 19:09:19 +0000

Ivy grad touches on some interesting points, and being someone whose actually gone through the recruiting process and also done some recruiting, I’d like to add a few:


There is a trend toward specialization in investment banks these days. You just don’t trade equity or fixed income now…you trade a very very specific instrument (esp. at larger firms, where an entire desk is often devoted to a single product). While it is correct to say there will still be more bankers than traders, with the increasing of specialization, I feel there will an increase in opportunities in the trading realm.
The increase in the number of markets will also bode well for opportunities in trading. India and China are 2 places which could be extremely large markets for Americans to play on. Other emerging markets are in Latin America and Eastern Europe. The US markets are extremely efficeint, and thus more difficult to make money on. Hence, the search for profits will mean there are more markets that are commonly traded on, and this means more traders will be needed to play on those markets.
Increase in hedge funds, and another area where more traders will be needed: They are here to stay no matter what you hear about the so called “hedge fund bubble” bursting or new SEC regs…the funds with enough talent will always yield superior returns. Today hedge funds control about the 20% of the volume on the US equity markets (and some days close to 50% on the NYSE)…I only see this, the number of hedge funds, and their assets under management (already close to $1 trillion) going up. It seems like everyone and their grandmother is starting a hedge fund these days, so there will be more job opps…1 good year at a hedge fund can be financially amazing for a trader. In fact, very often, hedge funds, along with VC and private equity firms, beat out investment banks in recruiting the top MBAs and undergrads.
The influence of traders in i-banks has increased anyway you slice it. There used to be a perception in investment banks that traders were gorillas or dumb jocks, while the m&a guys were the brains of the outfit…this is not the case anymore.


That being said, I agree with Ivygrad that an i-banking analyst position at least for a couple years is hard to beat for getting a good well rounded grasp of the financial world. Yes, there will still be more openings in i-banking than s&t, but I see trading as an area that will have more growth in the future.