The key to acing an interview is preparation—and beginning your preparation as soon as possible. It’s a lot easier to begin learning finance concepts early and gradually than it is to become a fixed-income derivatives expert in two weeks. Begin reading The Wall Street Journal, Bloomberg Businessweek, Fortune, Forbes, and other business periodicals as soon as possible. Sales and trading interviewers, while not overly technical, tend to want to talk about the stock market. A typical question that you may be asked is, “What do you think about the stock market.” This is a very open-ended question, but the more you are able to tie your market view to current events, the better.Fit Questions
Fit questions are normally the first screen to moving on to the next round of interviews. These questions are pretty typical investment banking fare, but you should be prepared to talk about why you want to trade or sell. Make your answer as concrete as possible by offering examples in your past that support your belief that you will make a great trader or salesperson.
1) Why do you want to become a trader/salesperson?
This question is not so relevant for someone with industry experience, but especially important for career switchers. Consultants who go back to school to get an MBA or a degree in quantitative mathematics to become traders need to have a reason for the career switch. This story should involve personal reflection and things that you’ve done in the past that suggest that you might be good at trading in the future. Maybe you’ve traded a personal account and not lost everything. Maybe you’re quick with the numbers. For salespeople, the important thing is that you love to sell. If you have a story of a time when you sold the equivalent of “nonexistent oceanfront property in Kansas,” by all means, tell it.
2) What are your greatest strengths?
Here you want to talk about how you’re really quick with numbers, you’re analytical, you’re motivated and driven, and love making money. These strengths need to somehow be related to the job, and if you have personal anecdotes to bolster your claim that you will be God’s gift to the currency trading pit, be sure to relay these experiences during your interview.
3) What are your greatest weaknesses?
As with any type of interview, you want to make sure that you’re not giving away your candidacy by listing serious weaknesses. For example, if your weakness list starts looking like “I’m a poor decision maker under stressful conditions,” “I’m not so quick with the numbers,” or “I prefer a quiet work environment,” perhaps you should consider an alternative to sales and trading.
4) What motivates you?
Be sure to mention that in your mind, greed is good (said in a more delicate way of course). Some people talk about wanting to learn from the experience—they are not surprisingly not invited for second-round interviews. Learning is great, but you’re paid to earn money. Companies want to hire people who can make money.
If you’re a business school student, it may be assumed that you’re already too smart for a trading desk, so beware of making yourself look too much like an academic. An acceptable compromise is that you look forward to the steep learning curve (this implies that you’ll learn fast) and the opportunity to excel in a true meritocracy. It is debatable whether S&T is actually a true meritocracy, but everyone within the industry tends to view the profession as such.
5) How smart are you?
Tricky question. You want to balance off being smart with being someone that people will want to work with. If you end up coming across as a brain attached to a body, then chances are good that you’re not going to get a callback. Being smart is a good thing. Being too smart is not.
6) What skills have you acquired that will make you appropriate for the job?
This is a really important question for career switchers. A lot of consultants enjoy using a functional resume (a resume organized around skills rather than work history). If you are one of these consultants, then pick the achievements that you feel are most relevant to sales and trading. If you haven’t given much thought to this question, think about situations where you have been called on to make decisions under uncertainty, situations that have required a lot of teamwork or a decision that you made that had a material impact on the bottom line.
7) How important is money to you?
Remember: greed is good (at least in this industry).
8) Tell me a good joke.
This is an elaboration on the airport test, which is basically a personality test that asks the interviewer to imagine being stuck at an airport for six hours next to the candidate and to assess whether he or she would be able to tolerate the layover. Make sure you have some jokes handy for your interviews, and with this question, you need to do your best to tailor the joke to your audience.
9) Why are you interested in sales and trading rather than investment banking?
This question deserves some thought. You can’t really say customer focus, since investment banking and trading are both highly customer-driven activities. You need to think carefully about what in your personality and past work experience makes you more suited to sales and trading versus investment banking. There is some disdain among traders for investment bankers and vice versa, although you’ll never get either to admit it. You could potentially use this information to your advantage during the interview, but be careful, since there are always exceptions to the rule.
10) How will you motivate yourself to make the calls you hate to make every day?
No one likes making cold calls, but enthusiasm and drive are probably the way to go on this one.
11) What is the greatest risk you have ever taken? How risky are you?
There is a common misperception that traders enjoy taking wild amounts of risk. This is simply not true. Traders are paid to take appropriate risks. Be sure that your example demonstrates that you performed due diligence that convinced you that the risk was worth taking, regardless of the eventual outcome.
12) What would you add to our firm?
Know the firm you’re interviewing with. Know the firm’s relative strengths and weaknesses and how you can contribute to its sales and trading capabilities.
13) What other firms are you interviewing with?
This is a tough question. You need to consider how much information to provide. For example, if you’re interviewing with a firm on the edge of the bulge bracket, do you really want to mention that you’re interviewing with seven other firms (and are therefore less likely to accept an offer with the firm)? On the other hand, if you say that you’re not interviewing with anyone except that firm, you run the risk of sounding desperate or undesirable. You certainly don’t want to lie on this one, but be sure to strike the right balance between being highly interested in the firm and being desperate.
Certain firms like to be compared to each other and not to others. While it’s common knowledge that Goldman Sachs and Morgan Stanley compete toe-to-toe in just about every business, there are less apparent rivalries that you should be trying to discern throughout the recruiting process. If you know the product area you’re interested in, the obvious place to start is the market share/league table. You generally want to make comparisons that the professionals that you’re going to be interviewed by are likely making on a daily basis. This is one of the points of differentiation between an unfocused candidate, and one that has done his homework and has sales and trading tattooed all over.Market Questions
Traders and salespeople live and breathe the market. You’ve got to be enthusiastic about your work to be a fierce competitor on the job, and interviewers will try and gauge how much you know about the market, not so much for any particular insight that you may have, but as an indication of your interest for the market.
1) Talk to me about the economy.
This question can come in a variety of forms: “Where do you see the dollar trading and how will this impact the long-term government bond market?” or “What is your outlook on inflation and do you think there is a risk of deflation?” or “Why is the Federal Reserve so concerned about inflation?” If you subscribe to The Wall Street Journal, are a frequent visitor to popular financial blogs, and wake up to CNBC every morning, you should have no problem with these questions.
2) What would you do with $1 million?
A more applied version of this general stock market question is, “Assuming I gave you $1 million to invest, how would you go about investing it?” Here, the obvious point is to talk about products that your interviewer cares about. Don’t recommend high-yield bonds to an equity salesperson, and don’t try and pitch a portfolio of foreign equities to a bond trader. A lot of times, your model portfolio will apparently draw the derision of your interviewer. This is typically going to be a test of your nerves—don’t back down. Try to justify your initial portfolio recommendation succinctly and articulately. On the other hand, don’t be disagreeable—this is a guaranteed ticket to rejection.
3) Tell me about a stock in your personal portfolio.
Salespeople are looking for your ability to pitch the stock, so practice pitching a few stocks in your portfolio. If you’re focused on trading, then focus more on the profitability of your trade, and the factors that drive your investing/trading decisions. If you don’t own stocks, then you should talk about potential opportunities that exist in the current market environment. While traders are interested in hearing whether or not you are able to make a sound investment decision, remember not to confuse trading with long-term investing. If you have an example where you were speculating based on a short-term market condition, this might be more appropriate than a buy-and-hold investment that you once made.
4) Pitch me a stock that you would buy or sell now.
Whatever you do, keep your answer brief. Salespeople and traders have very limited attention spans, so if you find yourself describing what the company does for more than one minute, you’re probably not going to sound very convincing. You need to show that you can take the best parts of a stock story and articulate a convincing case quickly. This is what salespeople do every morning, and if you can’t do it in in a room with a friendly interviewer, what makes you think you can do it with customers who get calls from 20 salespeople every morning? The ideal scenario here is that you give your pitch, and the interviewer asks a few follow-up questions that you are able to discuss intelligently because you are very familiar with the story.
5) Tell me about three stocks you would buy.
This question tests your depth of knowledge about the stock market.Product Questions
If you say that you love the bond market, then be prepared to answer bond questions. While this is particularly true in fixed income, the same goes for any other product area.
1) What particular product are you interested in?
Obviously talk about the bond market if you’re going for fixed income. The more successful candidate has done his or her homework and researched the firm’s relative strengths and weaknesses. Generally, if you’re applying for a job in bonds and find yourself at an industry leader, this is a pretty easy sell—you’d say that they are the best fixed-income franchise on the Street and you’ve always seen yourself with the best. It’s a little more difficult to answer this question if you end up interviewing for a firm that has not yet broken into the top tier of a particular product area. European banks, for example, seem to be perpetually building out their capabilities. However, do not fear—don’t be bashful about using the “I’d love to get in on the ground floor and what a great opportunity this is to be selling credit default swaps to the European client base of [name your European bank].”
2) Why are credit default swaps becoming popular again?
This type of question can come in a variety of different flavors, but it’s a simple screen for how much you care about the business, and how closely you follow the market. If you claim to be a credit default swap enthusiast and can’t even explain what they are, Houston, you have a problem. Know the product, know the role many people believe they played in worsening the 2008 financial crisis, know the reasons why the product area is growing again, and definitely know how the firm you’re interviewing fits into the whole picture.
A further elaboration of the product question is the technical question. If you’re a candidate that is targeting a specific product area, then you will likely be asked basic valuation questions. The following questions are common to stocks, bonds, and options, but there are a multitude of product areas. Be familiar with how to value the particular product you’re interested in.
1) What are the key points of difference and similarity between a stock and a bond?
A bond has a fixed maturity and normally pays a specified rate of interest. A stock, on the other hand, represents an ownership share in the firm’s assets and profits after senior claimholders (i.e., the bond holders and preferred stock holders) have been satisfied. If there is a dividend, this dividend is variable. Most stocks have voting rights, whereas bond holders typically do not have the right to vote. Both bonds and stocks are negotiable securities.
2) What’s the difference between a primary market and a secondary market?
The primary market refers to the issuance of new securities. Subsequent to this initial offering, stocks and bonds trade in the secondary market.
3) What’s the difference between a repo and a reverse repo transaction?
A repo (repurchase agreement) is an agreement for the sale of a security with the simultaneous agreement by the seller to repurchase the security at an agreed upon future date and agreed price. A reverse repo (reverse repurchase agreement) is an agreement for the purchase of a security with the simultaneous agreement by the seller to resell the security at an agreed future date and agreed price. If this sounds like securities lending, that’s because it is. Another name for the repo market is the “securities lending market.”
4) A Japanese company issues bonds denominated in British pounds which can only trade in the United Kingdom. What kind of a bond issue is this?
A foreign bond issue.
5) What happens to bond prices when yields increase?
Remember that there is an inverse relationship between bond prices and bond yields. If the yield decreases, then prices increase, and if prices increase then yields decrease. A more confusing version of this question is, “What happens to yields when the price of bonds rallies?” The answer is exactly the same, but it’s somewhat tempting to say that yields increase because prices are rallying. Don’t fall for this trick.
6) Why might two bonds issued by the same issuer with the same coupon and the same maturity be trading at a different price?
A great answer here is to talk about embedded options. You might notice that one bond has an embedded call option, while the other bond does not. Of course, since you the investor are giving up potential upside in the callable bond if interest rates plummet, you’re less willing to pay up for the callable bond. Alternatively, you might be willing to pay more for a putable bond, since the issuer has sold you a bond and has thrown in an option that you can use to return the bonds to the issuer if interest rates soar.
7) I have two bullet bonds of similar maturity and coupon. One trades above the yield curve, the other trades under the yield curve. Which one is the better buy?
This question tests your knowledge of the inverse price/yield relationship. Remember that a high yield means a cheap dollar price and a low yield means a high dollar price. This means that the better buy is the bond trading over the yield curve.
8) Is there an exchange of principal in a foreign currency swap?
You might be tempted to say no, since interest rate swaps do not exchange the notional amounts. However, because a foreign currency swap involves two different currencies, an exchange of principal at the outset and maturity of the swap is necessitated. Also, since there is no common currency upon which interest payments can be netted against, interest payments are paid in full in the two currencies involved in the swap.
9) Ignoring credit risk, what causes swap spreads to narrow or widen?
The answer is interest rate expectations. When interest rates are expected to rise, more borrowers want to swap into fixed and receive floating, so swap spreads widen. When interest rates are expected to decline, more borrowers want to swap into floating and receive fixed, causing swap spreads to narrow.
10) What is put-call parity?
Put-call parity relates the price of European puts and calls. The put-call parity relationship is expressed by the formula:
P = C – S + PV(K)
Where: C is the price of the call with the strike price K.
S is the price of the underlying security.
P is the price of the put with strike price K.
11) What are the limits of duration?
Duration is a useful tool for measuring price volatility, but there are several limitations to its use which are definitely worth knowing.
- Estimates are only valid for small changes in yield. The bigger the assumed change in yield, the more the price/yield convex curvature occurs and the less accurate the estimate.
- Duration assumes a parallel yield-curve shift, even though yield curves very rarely shift in a uniform fashion.
- Duration does not account for yield volatility.
- Duration cannot value bonds with embedded options. Duration implicitly assumes that cash flows are completely known and unchangeable. In the real world, bonds are callable and putable.
12) Assume a Treasury bond and a junk bond are issued at the same time and with the same maturity. Which bond has a greater duration?
The answer is the Treasury bond. If you went for the junk bond answer, then you have an incomplete understanding of duration which needs to be remedied. Duration is higher because the Treasury bond carries a lower coupon rate, which raises duration relative to the higher coupon junk bond. Does this mean that the Treasury bond has greater price volatility? To answer this question, you need to consider yield volatility. The price volatility of the bond is a combination of duration and yield volatility.
13) Why do yield curves invert?
Typically, the cost of borrowing increases as maturity increases. An inverted yield curve is an uncommon situation in which long-term interest rates are lower than short-term interest rates. Yield curves tend to invert following periods of tight money and tight credit, and when the curve inverts, the market is expecting that short-term interest rates will decline.
14) Assume an inverted yield curve. How do I make money in bonds if I expect the yield curve to revert?
If the yield curve reverts to its normal shape (upward sloping), then short-term rates must rise more than long-term rates. This means that you want to put on a curve-steepening trade where you buy long-term maturities and are short short-term maturities. This is a generic trade in the government bond market, and the spreads between two years and 30 years, two years and 10 years, two years and five years, and so on, are constantly quoted, especially ahead of Fed action and the release of widely anticipated economic statistics.
Be sure to know how to make money if the yield curve flattens.
15) What’s the difference between a stock exchange and a futures exchange?
Remember that a share of stock represents a fractional ownership interest in a company, whereas a futures contract represents the obligation to accept or deliver a quantity of a commodity on a pre-specified future date. The difference between these two exchanges is how a price is determined.
16) What is the duration of a zero coupon bond?
Duration is a measure of the interest rate sensitivity of the payments of a bond. Zero coupon bonds differ from conventional bonds in that there are no interest payments. Zero coupon bonds are issued at a discount and investors receive a single par payment at maturity. Since the amount and timing of this cash flow occurs independent of interest rates, the duration of a zero coupon bond is simply equal to its maturity. So, a 30-year zero coupon bond has a maturity of 30 years and a duration of 30 years. The duration of a 30-year conventional bond is substantially less than 30 years.
17) What is the delta of an at-the-money option?
Delta measures the change in the option value for a unit change in the underlying security. An at-the-money option refers to an option whose strike price currently equals the price of the underlying security. For example, an IBM June 80 call is at the money if IBM stock is trading at exactly $80 per share. At this price, there is a 50% chance that the stock will move “in the money” (over $80 per share) and there is a 50 percent chance that the stock will move “out of the money” (under $80 per share), so the delta of the at-the-money option is 0.50.Brainteasers
Brainteasers are especially common at the undergraduate level, where recruiters have little else than a GPA and school pedigree to separate one candidate for another. For equity-related positions, it used to be very common for people to ask interviewers to calculate 7/16ths or 14/32nds to three decimals. The reasoning here is that a lot of what happens on the desk is fast paced, and if you buy something at 7/16ths and then strike a deal to sell it at 13/32nds, you’re out 3 cents on whatever volume you’re transacting. Now that the stock market has decimalized, this question is a lot less prevalent, but you can still expect to be quizzed on your 32nds from the fixed-income side. One word of warning: if you’re not comfortable doing quick arithmetic on your feet, you’re probably not going to last long on a sales and trading desk.
1) What is the expected value of a roll of a dice?
Most traders, particularly the options traders, are very fond of asking questions about dice and playing cards. Pay attention in your statistics class—chances are very good that you’ll have someone ask you a basic probability question. By the way, the answer to the question is 3½, not 3.
2) Make me a price on the 8 serial numbers on a $1 bill.
This is a test of your familiarity with expected value. Expected value refers to what you can expect, on average. In this example, you have nine possible choices for any one digit. The expected value of any one digit is 5 (1, 2, 3 and 4 are below 5 and 6, 7, 8, 9 are above 5). Therefore, for an eight-digit serial number, the expected value is: 55555555.
3) What is the probability of flipping 3 heads and 1 tail?
This is a gambler’s trap. Coin flips are memory-less and there’s just as much a chance of rolling four heads as there are rolling of rolling two heads and two tails or three heads and one tail, etc. Each outcome has a probability of (0.5)^4 = .0625. Don’t get trapped thinking that there’s more of a chance that the fourth flip will be a tail just because the previous three flips were heads.
For more advice on interviewing, check out the following resources:
Goldman Sachs-Ask the Recruiter: Interview Tips https://www.goldmansachs.com/careers/blog/posts/ask-university-recruiter-interview-tips.html
JPMorgan Chase & Co.: Your Guide to a Successful Interview https://www.jpmorgan.com/pdfdoc/Guide_to_a_Successful_Interview.PDF
JPMorgan Chase & Co.: Attend an Interview https://careers.jpmorgan.com/careers/US/en/advice/prepare-for-an-interview
Deutsche Bank: How Effective Communication Can Make an Interview Go Your Way: https://www.db.com/careers/en/grad/apply/how-effective-communication-can-make-an-interview-go-your-way.html
Deutsche Bank: Interview Preparation: https://www.db.com/careers/en/grad/apply/interview-preparation.html
Citigroup: Citi Recruiter Insights
Citigroup: Advice on Interviews
Credit Suisse: Tips for Students and Graduates
HSBC: Application Hints and Tips