You're about to start your internship on the trading floor of an investment bank. What can you expect? How should you play it? What do you want to achieve in 11 weeks' time? Speaking candidly, current salespeople, traders, and previously successful trading floor interns (now in their third years of university) offer this advice.
1. Understand traders' language
If you're spending your summer on the trading floor, the first thing traders say you need to know is the vernacular.
A 'buy trade' is also referred to as a 'bid'. A bid is the price at which you're prepared to buy item A (be it a bond or an equity) on the market.
A 'sell trade' is also referred to as an 'offer'. An offer is the price at which you're prepared to sell item A to the market.
When someone in the market agrees to sell something to you (so that you buy it), they're said to 'hit your bid'. When you find someone who wants to buy what you're selling, they're said to 'lift your offer.'
The 'bid-ask spread' is the difference between the prices quoted for an immediate sale and an immediate purchase of A.
2. Understand the difference between going long and short
You also need to know the difference between making money out of something whose price is rising, and making money out of something whose price is falling.
When the price of A is rising, making money is simply a question of buying A and holding onto it until the price rises and you sell it further down the line. This is called 'going long.'
When the price of A is falling, you need to 'go short', otherwise known as, 'short selling.'
“Everyone intuitively understands going long an asset as this can be equated to buying something in the hope that the price increases. Going short is a slightly more complicated situation,” says David Hesketh, an ex-Merrill Lynch trader and COO of Financial Skills, a trader profiling company.
Hesketh suggests thinking about going short as “borrowing something from your friend and then selling it in the market. If you’re lucky, the price will drop before you have to return the asset to your friend. In this way, you benefit from a fall in prices.” There are a number of ways to replicate this short selling exposure without having to borrow the asset but this example helps prospective employees to relate to the concept in everyday life.
3. Follow, follow, follow the markets
If you work an investment banking division (IBD), you'll deal with a lot of secret deal-related information that won't be available to the public. By comparison, if you work in global markets, you''ll deal with a lot of publicly available information that causes markets to move.
You need to familiarize yourself with this as far as possible before your internship. "Understand what the major recent movements have been in equities, FX, treasuries and commodities," says one senior trader. "Know why these movements have taken place."
If you have access to the bank's intranet before and during your internship, read as many strategy reports as you can.
4. Read the financial press
"Buy your FT," advises one derivatives trader. "Yes it costs money, but you need to buy it and skim through the headlines. Read the articles for the headlines you find interesting. Talk about them with the team. The chances are that you will get this task anyway, so it is good to be one step ahead."
5. Have an opinion
"Have a view on where markets are going to go in the near term and where the best sources of value are to be found," advises one trader. This applies equally if you work in sales.
6. Ride out the rotations
In many cases, markets-related internships are organized as rotations. Here, you will move between different 'desks' dealing in different 'products'. For example, one week you might be working on the rates desk, while the next week you might on the 'investment grade credit' desk and the week after you might be on 'high yield'.
Rotations are a bit like roulette wheels - you don't quite know where they'll stop and some desks are better than others. On each rotation, there's no guarantee that the desk you're on will actually have a vacancy for a junior hire. Even so, you need to network heavily on all the desks you're placed on - and those you're not. Try to find out which desks have real vacancies as soon as you can.
7. Be open-minded about the desk you end up on
"Be open to all opportunities," advises one head of equity derivatives trading. "You may come into the internship specifically wanting to be a rates trader, but always be willing to speak to other teams and finding about what they do. The fact is, you probably don't know what you want to do yet and there's a very good chance that you might suddenly find yourself in sales!"
8. Be fearless in your questions
Don't be shy - you will need to ask questions. "You can ask anything and get away with it," says one trader. "If you don't come from an economic background and you're asking a lot of basic questions, they'll admire the fact that you are keen to learn. Try not to ask the same question twice though, not even to different people."
9. Fetch the coffees
It's a cliché to say your markets internship will be spent fetching the traders coffee, but as with all clichés, there's a lot of reality to it.
"Like it or not, you will bring the coffees anyways," says one trader. "So you might as well do it in style. The best intern I ever had, used to ask me, ''Would you like any sugar, any milk in it?' I was impressed that he could be very good at this job as well. It said something about his standards. He is now a reputed trader."
10. Ask yourself some hard questions
The best thing you can do during your trading internship is to use the opportunity to assess with a markets career is what you really want to do, says the head of equity derivatives trading. "Financial markets can be a lucrative career but at the same time it's not for everyone and individuals should use the opportunity to decide if it's what they anticipated it to be. The worst thing they can do is start a career in it, and they decide a year later that they don't enjoy it anymore."