Who Earns More: Investment Bankers Or Traders?

Investment bankers and traders are both financial services professionals who play a key role in ensuring capital markets run smoothly. While the two roles occasionally intersect in similar marketplaces, they have distinct responsibilities and working patterns.

Traders work long hours, often starting early in the morning and staying until markets close. They are responsible for buying and selling securities and other financial instruments on behalf of clients. They also research economic trends, review reports and analyse market data.

Investment bankers also work extremely long hours, often including weekends and holidays. They help clients raise capital through investments and act as a link between buyers and sellers. They are involved in stock markets and bonds, as well as mergers and acquisitions.

In terms of pay, it seems that investment bankers tend to earn more than traders, with one source stating that over nine years, an investment banker can expect to earn 25% more than someone in sales and trading. However, another source states that at the junior level, compensation for the two roles is fairly similar.

Salary: Investment bankers make more on average, but a trader's pay is performance-based

Investment bankers and traders have similar jobs, but there are some significant differences. Both professions are involved with finance and securities, but traders buy and sell securities and other financial instruments on behalf of their clients, whereas investment bankers help their clients raise capital through investments.

Traders can have varying academic backgrounds, and there are no legal academic requirements to qualify as a trader, although many firms require their day traders to have undergraduate degrees in finance, mathematics or accounting.

Investment bankers, on the other hand, usually have a mathematics foundation and often hold advanced degrees such as an MBA, with concentrations in finance, math or accounting. A bachelor's degree in business or a math-related field is generally required to become an investment banker.

When it comes to salary, investment bankers make more on average. According to Glassdoor estimates, the average pay for an investment banker was $395,741 as of June 2024, with an average range of about $297,000 to $554,000, including additional pay like bonuses and commission.

Traders' pay, on the other hand, is performance-based. Their pay is tied to their performance, so if they are good at their job, they can take home large sums. A compensation report by popular Instagram “finfluencer” @ibd_memes found that over nine years, an investment banker can expect to earn 25% more than someone in sales and trading.

At the junior level, compensation for the two professions is fairly similar. However, as traders become more experienced, their pay is tied to performance. A good trader can make a lot more than a good banker because they are getting a percentage of their profit and loss (PnL).

Hours: Traders work fewer hours, but may think about their portfolio outside of work

When it comes to working hours, traders and investment bankers have distinct differences. Traders typically work fewer hours than investment bankers. A standard trader's day starts early in the morning and ends when the markets close. They are not usually expected to work after the markets close, on weekends, or during holidays. In contrast, investment bankers are known for their long hours, often working past regular working hours, weekends, and sometimes during the holidays.

However, it is worth noting that while traders may leave their work at the office, they may find themselves thinking about their portfolio outside of work hours. The nature of their work requires them to stay updated with market trends and developments, which may occupy their thoughts even during their leisure time.

A source provides a detailed breakdown of the working hours for traders and investment bankers:

• Traders: 60-70 hours per week, with daily hours averaging 7-6.
• Investment Bankers: 80+ hours per week (including weekends), with daily hours averaging 9-11.

It is important to recognize that the working hours for both traders and investment bankers can be demanding and may vary depending on the specific role, company, and market conditions.

While traders generally work fewer hours, their jobs require quick decision-making, boldness, and the ability to work under pressure. Investment bankers, on the other hand, cultivate relationships with clients over more extended periods and need strong interpersonal skills to succeed.

Exit opportunities: Bankers have better exit opportunities, but traders can make a lot of money early

Exit opportunities are an important consideration when choosing between investment banking and trading. While both careers offer distinct paths, bankers tend to have more diverse exit opportunities, allowing them to pivot into different areas of finance or corporate development. On the other hand, traders' skills are often more specialised and may not be as easily transferable to non-trading roles, limiting their exit options.

In investment banking, professionals typically develop a broad set of skills that are applicable across various sectors. Bankers often work on deals that require building relationships with clients, cultivating financial expertise, and understanding market trends. These skills can be leveraged in private equity, hedge funds, corporate development, and other areas of finance. The ability to work long hours and manage complex transactions also makes bankers attractive candidates for a wide range of exit opportunities.

Traders, on the other hand, often develop highly specialised skills that may not be as easily transferable. Traders need to have a keen understanding of markets, strong analytical skills, and the ability to make quick decisions. While these skills are invaluable in trading, they may not be as sought-after in other areas of finance. Traders typically need to stay within the realm of trading, either for banks or hedge funds, if they want to continue utilising their expertise.

However, it is worth noting that traders can often make a significant amount of money early in their careers. The merit-based nature of trading compensation means that successful traders can earn large sums, especially if they are able to establish a track record of generating profits for their firms. This can provide traders with financial security and the option to pursue other opportunities if they choose to do so.

Ultimately, the choice between investment banking and trading depends on individual preferences and career goals. Both careers offer unique challenges and opportunities, and it is important to consider factors such as work-life balance, skill development, and long-term prospects when making a decision.

Skills: Traders need strong numeracy skills, while bankers need good interpersonal skills

Traders and investment bankers have distinct skill sets that are suited to their respective roles. While both professions require a strong understanding of finance and mathematics, their day-to-day tasks differ, resulting in a different focus when it comes to skill development.

Traders need to be quick and sharp, with strong numeracy skills and the ability to analyse data and identify trends. They must be able to focus on relevant, actionable data and make quick decisions. Numeracy skills involve basic mathematical functions as well as interpreting data and working with statistics. They also need to be able to control their emotions and stick to a trading plan, particularly in chaotic, fast-moving environments.

On the other hand, investment bankers require strong interpersonal skills to build and maintain client relationships. They need to be good communicators and relationship builders, with the ability to deal with difficult people in extreme situations. Investment bankers also need to be able to work well in a team and collaborate effectively. They must be able to cultivate and develop relationships, as well as understand and meet their clients' needs.

While traders need to be decisive and quick-thinking, investment bankers need to be methodical and slower in their approach. Investment bankers work extremely long hours, often including weekends and holidays, and their work involves a lot of careful calculations and complex formulas. They need to be able to manage the technical aspects of working in the finance field, such as using computer programs to analyse complex financial data sets.

In summary, traders rely heavily on strong numeracy and analytical skills, coupled with self-control and focus, to make quick decisions in fast-paced, high-pressure environments. Investment bankers, on the other hand, need excellent interpersonal skills to build relationships and communicate effectively, as well as the ability to work long, demanding hours and manage complex technical tasks.

Specialisation: Traders are diverse, bankers need to be experts in one area

Traders are generalists, dealing in a wide range of financial instruments, from stocks and bonds to derivatives in the commodities markets. They are also diverse in terms of personality, with a "raw mental ability" and an "it factor" that makes them competitive and able to withstand pressure.

On the other hand, investment bankers tend to be specialists, operating within a specific area of expertise. They require a deep understanding of markets and patterns and are bold and decisive in their predictions. They also need to be financially intelligent and have strong interpersonal skills to develop relationships with clients.

The diversity of traders is reflected in the variety of job roles available in trading, including trading associates, trading analysts, block traders, and sales traders. Each of these roles has distinct responsibilities and requires a different set of skills and qualifications.

Investment bankers, on the other hand, tend to specialise in one area, such as mergers and acquisitions (M&A), raising capital through debt or equity markets, or restructuring existing companies. They often work extremely long hours, including weekends and holidays, to develop and complete their deals.

While traders are diverse in their skills and personalities, investment bankers tend to be experts in a specific area of finance, working tirelessly to serve their clients' needs.

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