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Difference between investment Banking and trading

Banking Investment / July 17, 2015

There are many roles in financial services that play a key part in ensuring capital markets run smoothly and efficiently. Two such roles, investment banking and trading, are components of most large Wall Street investment firms, where these integral functions are counted on to provide the bulk of revenue. These roles occasionally intersect in similar market places but actually have very distinct responsibilities. (Seeking a career in finance? You should definitely not miss Investopedia's article on Top Job Search Mistakes By Finance Grads.)

What is a Trader?

A trader brings buyers and sellers together so that assets can be exchanged. For that intermediary role, the trader gets paid. Trader types include flow traders, who use client funds; and agency traders, who act as middleman and place trades on behalf of clients. Other types of traders may engage in trades on behalf of their firms as proprietary traders or take the other side of a trade when no buyer or seller is available.

What is Investment Banking?

Investment banking is the part of the financial company that does deals. Similar to traders, investment bankers put together buyers and sellers. And, like traders, they too are involved in the bond and stock markets. But investment bankers perform additional functions. They bring together buyers and sellers via mergers and acquisitions (M&A); or they might raise money in the debt (bond) or equity (stock) markets when they sell a company to the public in an initial public offering (IPO) or when restructuring existing companies.

Trader vs. Investment Banker, at-a-glance:


Investment Banker

Develops relationships with clients cultivated over a short time span, after which trades are usually quick to develop and execute

Works on deals where it may take months or years to develop a relationship and get the deal done

Typically are at their trading desks very early in the morning prior to the market open and don’t leave their desks until when the markets close. But after the markets close and on weekends and holidays, they usually do not work

Labor extremely long hours, including weekends and holidays

Need to have a keen understanding and reading of markets and patterns. Described as bold and decisive, with natural instinct about how the markets work and which way the market will go

Play a dual role of relationship builder, so they need to have good interpersonal skills, and a financial wizard who is able to construct a plan that is financially astute and often creative, tailored to the client’s needs

Specialize in one asset class; stocks and bonds are the most frequently traded assets, but traders are also involved with derivatives in the commodities markets (such as wheat or oil) and in currency markets.

Tend to specialize in one area and operate within their expertise

Need to be mathematically inclined

Need to be financially intelligent with a strong mathematics background

Bottom Line

Both investment bankers and traders work in stressful environments in which an enormously large amount of capital is at risk and the overall firm counts on the fees to grow revenue. Each has a distinctive role and requires different skills and personality characteristics.