Capital Markets Trading Career Profile (2024)

What is Capital Markets Trading?

Capital markets trading is a sell-side career path within the capital markets division at an investment bank.

A trader is responsible for the buying and selling of financial markets instruments, such as stocks, bonds, foreign exchange, and derivatives, either on behalf of the bank’s institutional clients, for the bank using the bank’s capital, or some combination of the two. The bank’s clients are buy-side institutional investors that manage money professionally and may include hedge funds, mutual funds, pension funds, and governments.

They are highly specialized in the financial instrument that they are responsible for trading and most traders spend many years perfecting their craft in a very stressful environment.

Given the high-stakes nature of the industry, there is intense competition, both externally and internally, for capital markets traders. Unsurprisingly, the role is highly stressful but also potentially very lucrative, making it highly coveted.

How are Capital Markets Trading Departments Organized?

Sales and trading

Although we often hear about roles in sales and trading (S&T) lumped together, the jobs of sales and trading are very distinct, demanding different skills and responsibilities.

However, in most banks, the salespeople and traders work together in a symbiotic way. For example, traders depend on salespeople to help them buy or sell the securities they would like to trade. Salespeople depend on their traders to help make prices for securities that their customers would like to transact.

A trading “desk”

Trading is a very specialized role as traders are not only experts on the capital market product they trade, they also have to know how other factors and markets will impact their own trading book. Therefore, you seldom see capital markets traders responsible for trading multiple asset classes at the same time.

The reason for this clear delineation is simple — to ensure accountability and to encourage specialization. Investment banks want to make sure that their traders maintain laser-like focus in order to gain an edge over their competitors.

You will, however, see trading teams loosely arranged by the type of markets that they trade, most commonly referred to as “desks”such as:

• Japanese yen rates trading
• European sales trading
• APAC non-linear corporate derivatives trading

Passing the book

Traders are arranged this way to ensure that there will be someone to help cover the various instruments traded when the main trader is off the desk for lunch or on annual mandatory leave (called “compliance leave” so compliance has time to ensure that the trader isn’t doing anything illegal). It also provides a way of ensuring that the bank isn’t compromised should a trader ever be lured away from the firm by a competitor.

Traders also often pass their book, which means their open positions or any orders they are working, from one time zone to another. A great example is a US Treasury government bond trading desk. As US Treasuries trade around the clock, a trader who works in New York and trades the belly of the curve (3-10 year notes) might pass their book to a colleague in Tokyo at the end of her day, who then passes the book to a colleague in London at the end of his day. This ensures that salespeople and clients are able to get prices in 5-year Treasury notes in all time zones but also means that someone is looking after the bank’s risk throughout the entire day.

Reporting lines

Each trader on these desks will report to the respective trading desk heads for their respective asset class or financial instrument, who in turn may report to a regional head of trading, who reports to a global head of trading.

What Makes for a Successful Capital Markets Trader?

For a trader, your success is quite simply the amount of profit you make for the bank (called P&L for profit-and-loss statement). While there are rankings provided by third parties and counterparty rankings provided by clients, the value of a trader is how they are able to quickly analyze and act on markets to maximize their P&L.

Zero-sum game

A Wall Street trading floor is one of the most intense working environments. With trillions of dollars at stake around the world every day, trading in capital markets is a zero-sum game where your profit is most likely someone else’s loss. In that environment, traders are the alphas at top of the food chain.

As such, successful traders are extremely cutthroat, unflappable, and determined. As a matter of fact, you can still find very senior traders in firms where they have cut their teeth jostling with other traders in open-outcry trading exchange pits. It is a fine balance between analysis and instinct which allows the best traders to make split-second decisions on the price of an asset or when to buy, sell, or hold.

High stakes

Since the stakes are so high, traders routinely try to find any edge possible to increase their profits, share of trading, or commissions. That means creating bespoke models, having their ears to the ground for market news and rumors, as well as speaking with their peers regularly.

However, some traders step too far over the line and there have been numerous instances of illegal trading activity, such as the LIBOR fixing scandal of 2012 or Nick Leeson’s rogue trading causing the collapse of Barings Bank in 1995. As such, traders are highly scrutinized by the risk management departments within their respective banks to ensure compliance with risk limits and other regulatory requirements.

Typical Job Duties in Trading

Capital markets traders work on the bustling trading floor, where their work day is extremely fast-paced and chaotic.

On a typical day, traders start very early. The first thing to do is to review overnight news and trades, peruse the latest research and formulate their strategy. Most sales desks will have a “morning call,” where various key traders and research analysts may present their latest views. Salespeople are often called upon to outline what their key clients are thinking and how they are looking to position their investments.

Once the morning call is done, the traders settle down for the opening bell or for their market to kick off. Throughout the day, they may have to respond to client inquiries for prices, react to economic releases and other relevant news, hedge their positions, or speak to their colleagues in sales and research to get trading ideas.

Depending on the role of the trader, they may focus on facilitating client trades (flow trading), matching buy and sell interest from clients or brokers (agency trading), or taking a view of the markets (proprietary trading).

The middle of the day might bring a bit of downtime, as many equity markets close for lunch and clients/sales are away. But in the afternoon, it’s back to hectic trading.

The end of the market day and passing their book off to another colleague doesn’t necessarily mean that the traders’ work is done. Before closing or passing the book, traders might need to hedge their risk by perhaps futures, forwards, swaps, and options and/or leave orders in different time zones. Traders often field phone calls late into the night to update their trading colleagues or salespeople in other time zones who help watch the book around the clock.

While most roles within an investment bank tend to be stressful and fast-paced, there are few roles that are more stressful than trading. However, in terms of hours worked, traders’ hours tend to be more “set” compared to investment bankers who may have some weeks where they work over 80 hours when they have a live deal on the go. In trading, there really isn’t much fluctuation in the number of hours worked and weekends tend to be more free than an investment banker.

Compensation Factors and Salary Expectations in Capital Markets Trading

With this high level of expectations and stress, compensation for good traders is high — some of the highest in the investment bank. Compensation for capital markets traders is broken down into a base salary and year-end bonus. As is the case with most jobs in the financial industry, experience is typically associated with higher pay.

But what really separates compensation in trading from other jobs in an investment bank is the huge P&Ls that the most successful traders can generate in any given year for the bank. Year-end bonuses can be many multiples of the annual base pay and can be in the tens of millions of US dollars.

While the overall performance of the desk and the firm does have an impact on bonus pay, traders don’t generally tend to care too much about that. Instead, they believe in being paid for the P&L they make for the bank and may jump ship to other firms that promise more money.

For successful traders, they can also look forward to greater responsibility. Not only will they be given higher trading limits, they may get more areas to trade or more direct reports. This ultimately leads to the chance of better performance, which ties into even higher pay.

As a trading manager with more traders and P&L in their book, their bonus pool also increases and in this industry, that means more power and influence.

Job Qualifications for Salespeople and Traders

Roles in capital markets trading are fast-paced, competitive, and very lucrative for those who have the right skills.

New sales associates are frequently recruited from highly sought-after undergraduate programs across the globe. If a new analyst (undergraduate degree) or associate (graduate degree) performs well during the year, they can expect to be promoted and continue their career path toward vice president, executive director, and, ultimately, managing director.

Trading is very much a “learning through doing” type of career, and those who exceed expectations on the trading floor can achieve incredible successes. Career mobility is often determined by one’s ability to generate P&L.

Some individuals can perform exceptionally well at the first investment bank they join, while others may find themselves being poached by other firms until they work with one that is best suited to their needs.

Additional Resources

Interested in learning more about a career in capital markets trading?

Enroll inIntroduction to Capital Markets for an even more in-depth look at this dynamic role.