6 Sales and Trading Interview Questions and How to Prepare
These are the questions you need to have answers for in a sales and trading interview at firms like Goldman Sachs or J.P. Morgan
Sales and trading is one of the most exciting, interesting, and lucrative areas of finance to be in. However, the interview process can be a nightmare.
This is largely because sales and trading is wholly distinct from other areas of high-finance like investment banking where the role is very similar regardless of what coverage group you’re in. For example, the kinds of questions you’ll face when applying to healthcare investment banking won’t be largely different than those you’d face when applying to industrials investment banking.
However, in a sales and trading interview you will potentially be interviewed by people with wildly different backgrounds, roles within the firm, and beliefs in what makes a good summer or full-time analyst.
For example, a VP of equity derivatives trading interviewing you may think it’s important for any one entering into sales and trading to have a pre-existing idea of what desk they want to be on, what product that desk trades, and what the technical mechanics behind that product are.
On the other hand, a VP in rates sales may think it’s better to drill down into behavioral questions and try to figure out who the candidate is, what their motivation for applying to sales and trading is, and how they think about the future of the industry and their place in it.
This variance in the kinds of people who will be interviewing you and what they deem to be most important in interviewees can lead many to think it’s impossible to really prepare for interviews.
However, as you’ll begin to see in this article you can prepare efficiently and effectively for sales and trading interview questions (it’s just a bit more complicated to do than in other areas of finance).
In this article we’ll first go over the three things you need to do to prepare for a sales and trading interview, then we will get into providing in-depth answers to six real-world interview questions (including one question that crops up in nearly every interview).
How to Prepare for Sales and Trading Interviews
When thinking about how to prepare for a sales and trading interview, it can all get quickly overwhelming.
However, there’s no need to be overwhelmed. No one expects you to know the nuances of volatility smiles or what cross-currency basis swaps are.
Just like in any other area of life everything is relative. Your job in an interview is not to know everything, it’s just to demonstrate that you know more than most of the other people at the superday.
What your interviewers will fundamentally evaluate you on is three distinct things and thus your preparation should surround internalizing these.
I often get made fun of for continually harping on how important it is for candidates to demonstrate their contextual understanding of sales and trading.
However, there is no better way for a candidate to stand out than to show that they understand what S&T is really all about.
What contextual understanding really means is being able to demonstrate that you understand what desks exist on a trading floor, know the distinctions between those desks, know what traders and sales people actually do, and know how the bank actually makes money.
A shockingly high number of candidates who make their way into superdays are under the (false!) belief that there are loads of proprietary trading desks where folks sit around debating which securities are likely to go up in value (and thus which ones are best to buy).
For example, showing that you understand the fundamental role of a trader is to provide liquidity for clients and manage their book of risk is highly impressive. What this demonstrates is that you understand that the earnings of the trader is a derivative of their client interactions and risk management, not the thing they set out to do first and foremost.
Likewise, showing you understand how post-crisis regulations — like the Volcker Rule — have shaped what modern sales and trading looks like is highly impressive.
What contextual understanding really does it shows your interviewer that you have done your homework and are understand what sales and trading is (and perhaps more importantly what it is not).
If you’re looking for an even longer breakdown on what sales and trading is in order to build your contextual understanding, be sure to check out the over 11,000 words I wrote in this post:
Sales and Trading 101: The Definitive Industry Overview
Sales and trading revolves around traders and sales people making markets for clients across a variety of different…
Know What Desks You’re Interested In
Some sales and trading summer analyst programs — like those run by J.P. Morgan and Morgan Stanley — have fixed placements. Others, like Goldman Sachs, operate on a rotational basis (where you will rotate through three separate desks).
Regardless of which firm you’re applying to having an idea of where you would like to end up is highly impressive.
You should never speak as though you are absolutely certain about what desk you want to be on. Of course, there’s no way to know if something really fits your personality and skillset until you get started on the desk.
But being able to show that you have thought seriously and deliberately about what desks exist and where you think you want to be will leave a very positive impression on your interviewer.
In one of the questions below I cover how to answer the question surrounding what desk is right for you in more detail.
Be Prepared for Technical Questions
The internet is full of people saying strange (and wrong) things and one of them is certainly that you shouldn’t be prepared to face any technical questions in a sales and trading interview.
This couldn’t be less true. If you are impressing your interviewer they will most certainly toss some your way.
These technical questions provide you an incredible opportunity. No one will expect you to get them fully right, or even have a great answer to them, so if you can answer them well then you can lock in an offer with relative certainty.
As I mentioned before, you shouldn’t expect questions that are absurdly difficult. Rather, you should expect questions that get to the heart of what defines the products traded on various desks.
For example, if you express an interest in rates trading, then you should be able to demonstrate knowledge about how a rates desk is structured, what futures are, etc.
These aren’t too complicated, but if you know these things you are setting yourself up for success. As an example, here’s a little post on real-world rates trading questions:
Rates Trading 101: Interview Questions, Desk Structure, and Exit Oppor
One of the largest trading desks within any bank's sales and trading division will be the rates desk. How exactly the…
So as you prepare for a sales and trading interview, you should be continually asking yourself if you have contextual understanding, have a few desks you are interested in, and if you know the technical attributes of those desks.
Note: Due to how important desk knowledge is, and how limited the information out there is on what specific trading desks do, I put together nine desk-specific sales and trading guides to help get you up to speed on the basics quickly.
Now let’s get into some interview questions…
Question 1: In Sales and Trading Who Are Our Clients?
This is one of those questions that seems simple, but in reality is able to tell the interviewer a lot about your contextual understanding of sales and trading.
In order to answer this question you should do two separate things.
First, you should list out the typical kinds of clients that come to an investment bank. These can be categorized as “fast money” clients like hedge funds and “institutional clients” like large asset managers, pension funds, endowments, sovereign wealth funds.
The second thing you should do is pick a few desks and give examples of how their client mix is different. For example, the rates trading desk will be dealing primarily with institutional clients. On the other hand, the distressed debt trading desk will primarily be dealing with hedge funds as institutional clients don’t generally have a mandate to hold securities with that kind of risk profile.
What this kind of answer does it demonstrate that you broadly understand the kind of clients served by the bank, but at the same time understand that the client mix is variable depending on what product the desk trades.
Question 2: What Are Your Concerns about Sales and Trading?
This is another great question. On the surface it appears like it can’t have any right or wrong answer as it is framed in such a subjective way.
In reality, if you frame your answer correctly then you can really impress your interviewer.
If you’ve been poking around online you’ve likely heard people talk about sales and trading “dying”. In fact, this is such a prevalent question I wrote a whole rather long post on the subject here:
Is Sales and Trading Dying? The Future of S&T
Every year like clockwork prospects thinking about applying to sales and trading (S&T) positions ask the same…
The correct way to answer this kind of question is two-fold.
First, you should talk about yourself. By this I mean you should say that you are concerned that due to the diversity of desks that exist in sales and trading you are concerned that you may end up on a desk that isn’t quite right for you.
For example, perhaps you get slotted into municipal bond trading, but then realize that you like more flow-oriented desks that are more fast paced. Or perhaps you realize you like talking to clients and trading isn’t quite right for you, so you’d rather be on the sales side of things.
Second, you should talk about the broader sales and trading landscape. You should be prepared to talk intelligently about how the regulatory landscape has changed post-crisis.
In particular, I’d focus in on how risk limitations have changed, which has curtailed some of the capacity for certain desks to position themselves to serve clients and weather difficult markets.
The two pieces of regulations you should brush up on are Dodd-Frank, which contains the Volcker Rule previously mentioned, and Basel III. Here are a few resources on these:
Dodd-Frank and Basel III: Implementation in the U.S. - Diaz Reus International Law Practice
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires federal banking agencies to set minimum leverage…
Capital Requirements and Liquidity Requirements
Capital requirements are the standardized measure in place for banks and other depository institutions that determines…
Question 3: What’s the Relationship Between Bonds and Equities Historically and Today?
For the past five decades much of modern portfolio theory has been undergirded by the notion that bonds (primarily government bonds) and equities have an inverse relationship.
What this means is that if you had the pro-typical portfolio of 60% equities and 40% bonds your portfolio would be less volatile as when equities went down, bonds would increase in value.
More specifically, the theory went that as equities declined in value investors would rotate into government bonds thus driving their yields down and their prices up. This is the typical “flight to safety” phenomenon widely noted in the financial press.
Over the past year this relationship has begun to decouple at times, however. As equity prices have declined so too have bond prices (meaning bond yields have gone up).
There is no definitive reason for why this is. Many market participants think this is a function of poor liquidity in the bond market during stressful times, which leads to this counter-intuitive relationship being observed.
If interested, here is a brief research report looking at how this relationship has both held true to historical norms and occasionally diverged for periods of time:
The end of an era for the bond-equity relationship?
Stock and bond prices dropped together during the recent coronavirus sell-off, leading to fears that U.S. Treasurys…
Question 4: What Desk Are You Interested In?
Like the first two questions, the answer to this question can seem deceptively simple. But if you can provide a thoughtful, nuanced answer you will definitely score marks.
You should always preface your answer to this kind of question by noting that you obviously can’t be confident in any one desk being risk for you prior to beginning.
It’s always important to show humility when answering these kinds of questions. In particular in sales and trading where everything is so opaque prior to beginning.
After prefacing your answer, you should then give a few related desks that are of interest to you and explain why.
So, for example, if you are interested in a more fast-paced environment, enjoy talking to interesting people, like the structure of fixed income products, and have a more social disposition than you should say something like rates sales or mortgage-backed securities (MBS) sales.
On the other hand, if you enjoy a slower pace, where markets are more volatile, and where having a deep understanding of the product is essential then an area in credit derivatives trading or distressed debt trading would work for you.
There’s no wrong answer to this question per se. However, a good answer will provide a few different, but related desks, and then speak to how you think these fit your personality and skillset.
Question 5: What’s The Major Difference Between a Mortgage-Backed Security and a Traditional Bond?
This is a more technical question. While this is a kind of question anyone could get, if you brought up during your interview that you’re interested in the trading or sales side of mortgage-backed securities then this would be a likely follow-up.
As I’ve stressed before, no one expects you know all the ins and outs of a MBS. But if you can give a reasonably articulate answer here then you would win some serious points.
The primary difference between a MBS and traditional bond is payment timing certainty. With a traditional bond you have a defined maturity date, defined coupon rate, and defined schedule for when you receive those coupons (almost invariably semi-annually).
With a MBS you receive both principle and interest payments on the set of mortgages monthly. If mortgage holders choose to prepay part of their mortgage, refinance their home due to a better rates environment, or sell their home then an unexpected amount of cash flows will flow through to the MBS holder.
Put more simply, with a bond when interest rates fluctuate the yield on the bond changes, but the amount of coupons you receive and when you receive them doesn’t. With a MBS as interest rates fluctuate you will end up receiving more or less payments than you expected. This sensitivity creates a large problem in properly modelling mortgage-backed securities and figuring out ongoing valuations of existing mortgage-backed securities.
Question 6: What are Convertible Bonds? Are They Closest to Debt or Equity?
On most trading floors there will be a few traders that deal specifically with convertible bonds. However, because they are quite a well known type of security with interesting properties, you may face a basic question about them.
A convertible bond is a debt instrument, but with the capacity to exchange the bond into a predetermined number of shares at a certain strike price. The current value of the shares that the convertible bond can be converted into is known as the parity or conversion value.
Convertible bonds are obviously debt-instruments, however the convertible bond desk is often close to the equity derivatives trading desk. This is because convertible bonds can really be thought of as having call-option like features. If the common share price of a company stays below a certain level (the strike price), then the convertible bond is just a debt instrument, however if it reaches said strike price the owner of the bond will exchange it into common shares.
For this reason, a convertible bond is somewhere in the middle, but since what drives the convertible bond’s value is actually the share price of the company one could make a sound argument it is more like equity than debt.
For bonus points, when answering this question you can say that in the capital structure of a company convertible bonds rest just above equity and are the lowest form of “debt” in the capital structure (by level of seniority).
Conclusion & Future Reading
Well there you have it. As you can probably tell, I really enjoy talking about sales and trading and helping shed light on how to break in.
Ultimately, the reason why I write on sales and trading is that I think it is one of the best possible careers to pursue. While there are certain desks I would avoid (you can always feel free to ask me about these), overall S&T provides unparalleled work / life balance, compensation potential, and exit opportunities.
Preparing for interviews can be a challenge. When I first got my summer analyst offers (from JPM and GS), I was largely flying blind. Then once I got on the trading floor it was a bit overwhelming trying to figure out where I should target and ultimately end up.
Because of the utter lack of information online about what sales and trading really is all about and how to prepare, I spent many months putting together the definitive interview resource based on my experience in the industry.
What I ended up creating spans hundreds of pages with hundreds of real-world interview questions and answers. All of this is spread out over 13 different guides to make it easier to digest.
If after reading this article you want even more prep, be sure to check it out. To say that this is the largest, most comprehensive interview prep resource on sales and trading would be a rather large understatement.
Sales and Trading Interview Questions, Guides, and Resources
Get access to 300+ Sales and trading interview questions & answers. Everything you need to know about sales and…
It’s been a lot of fun to put this all together and it’s been more rewarding that I could have possibly imagined to see people getting offers as a result of what I’ve created.
Note: I’ve also compiled some other sales and trading questions you may enjoy reading here:
Top 19 Sales and Trading Interview Questions and Answers
Sales and trading interviews are some of the toughest to crack in all of finance. The reason being is that there is no…
Best of luck in your preparation and be sure to let me know if you have any questions. I’m always happy to help when I can.