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GUEST COMMENT: How to prepare for a graduate trading interview with an investment bank

The good news about interviewing is that it’s a skill, and with the right amount of practice and effort you can master it.

And unlike with networking, you can actually improve your odds quite a bit at the last minute with solid interview preparation.

Based on personal experience (I got an offer from an investment bank despite not attending a target school), this is the four step process you need to go through:

  1. Understand the qualities they’re looking for.
  2. Know the questions you’ll get.
  3. Prepare your “story” and answers to the most common questions.
  4. Practice, practice, and practice some more.

Qualities?

When banks look at CVs for trading positions, they’re interested in three things: quantitative ability, analytical skills, and passion for the financial markets.

In interviews, they’ll be looking for these and more. They’ll also want to know:

Is this person hungry to be a good trader, or are they just “checking it out?”

Can this person think very quickly, without hesitation?

Can he/she take risks and act appropriately even when things don’t go their way?

Is this person nervous in the interview, or can they handle the pressure?

Can he/she think differently from everyone else and come up with strategies and ideas that go against the mainstream?

Does this person want to do trading specifically as opposed to related fields such as asset management?

Knowing that this is what they want to establish, you need to think of ways of demonstrating this in your answers to their questions.

Questions?

In trading interviews there are 3 main question categories:

Behavioural / Fit – The questions are similar to the questions you’ll get in any finance interview, but your responses must be framed so that you demonstrate the qualities above.  Similarly, you need a “story” that makes your quest to work in sales and trading look plausible.

Market – Everything from discussing market trends and current events to pitching stocks and trading strategies.

Brainteasers / Maths Questions – What’s the square root of 58? How many smaller cubes are painted on 2 sides in a large cube made up of 9 smaller cubes on each side that’s painted on the outside? What’s 57 x 83?

If you attend an investment banking or private equity interview, you’ll get technical questions on accounting, valuation, and financial modelling. However, in a sales and trading interview you’re more likely to get questions focused on basic concepts such as market capitalisation and basic multiples like P/E.

They’re more likely to focus on basic concepts such as market cap and basic multiples like P / E, rather than the in-depth trade-offs of different methodologies and models.

Focusing on the ‘fit questions’

Fit questions are especially common during the telephone interview stage, when they are used to weed candidates out. It’s therefore important that you know how to respond.  There are some fit questions which are common to trading interviews. They include things like:

“Let’s say you just bought a stock, and you told yourself that you would sell it at a certain point. Then, the stock dipped below that point, but your colleague told you that the stock was going to go back up. What would you do?”  (Cutting losses is extremely important in trading, and so that’s exactly what you would do here… but you should also back it up by pointing out how you’ve cut losses in the past, with trading itself, a school or work project, or anything else.)

“Why do you want to work in trading instead of sales? Do you want to work in equities or fixed income and why? Which particular product are you most interested in?” (These questions are more about knowing what you do in each group and how different desks differ rather than coming up with earth-shattering insights.)

Be sure to express your openness to anywhere in the firm that you can learn the most – this is especially important if your interviewer is in equities, but you know you want to do fixed income.

Placement usually comes later on, so you’re best off not offending your interviewer because there is a HUGE divide between equities and fixed income.

Your story and your answers to the questions

To show that you’re a ‘fit’ for a sales and trading role, you need to come up with a convincing story explaining what sparked your interest in finance, why you’re there at that interview, and what you see as your future.

Be warned that a very common, and very uninspired approach is to say something like: “I’ve always been interested in investing in stocks and managing my own portfolio, and a career path where I could research stocks to buy and sell and then make trading decisions would be ideal for me.”

While this demonstrates interest in the financial markets, it doesn’t show that you are specifically interested in sales & trading  – that answer could apply to asset management, equity research, value-oriented hedge funds, or plenty of other fields.

Plus, sell-side traders don’t even “research” stocks and make decisions that much unless they happen to be prop traders… and even there, there’s still overlap with market-making and client work.

Therefore, you need to explain why you want to do S&T as opposed to other public markets roles.

A far better approach, is to pick a specific product to talk about such as options, other derivatives, commodities, FX swaps, etc. Make sure you know everything there is to know about that product and how it’s traded: you will get follow-up questions.

Next, talk about how you enjoy the results-driven environment – having a personal P&L makes trading different from equity research. You need to show that you appreciate that.

A far better story

Instead of saying you love investing and managing your own money and want to be a trader, you’re better off with the sort of story that stresses you studied something technical, won first place in a trading competition having analysed industry X and shorted one stock whilst going long another, that you’ve completed an internship in a small wealth manager, but wanted something more results oriented, and spent time in a small hedge fund where you focused on product x (which you’ve expressed an interest in).

You need to make it clear that you’re passionate about the financial markets, making trade decisions, living and dying by results, that you want to make a long term career out of the product you’re interested in and that you think Bank X offers the best environment for that.

Practicing your answers to predictable questions

There are some fit questions you can always expect. The most typical is:

Q: Tell me about a problem you faced and how you dealt with it.

Stories that could work well in S&T interviews for these types of questions include things like:

You came up with a contrarian strategy in a stock investing competition and placed well as a result.

You were under pressure to turn around a student club before it ran out of funds in a matter of weeks, and came up with a creative solution that saved everyone.

You evaluated the risk of a new business you were starting, and hedged your risk by taking some other action.

You analyzed a client’s portfolio and came up with new strategies that earned him above-market returns – even though he thought it was too risky at first.

You were losing a debate competition, but you thought quickly on your feet and found a way to spin your opponent’s argument around that allowed you to come back from behind and win.

Practical tips on practising for interviews

When I was preparing to interview in an investment bank, I did everything imaginable, from recording myself to sketching out my answers to doing mock interviews with older classmates and friends who had been through the recruiting process.

You do get diminishing returns after enough practice, so you don’t want to over-do it… if you’ve already done 15 practice interviews, you’re not likely to learn much more from the 16th one.

And you should never give scripted answers because they sound very artificial – rely on outlines rather than pure memorization, and try to change up the details of what you say each time.

A version of this article first appeared on Mergers and Inquisitionsa website dedicated to helping people break into investment banking, and to maintaining their sanity while doing so.

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