Traders and investment bankers are both associated with financial services but each profession has a distinct role. Investment bankers are involved in the equity and debt capital markets, and help corporate executives value assets, raise money or turn a struggling business around. When investors want to buy or sell shares of stocks and bonds, they need someone on the other side of the transaction in order for the trade to occur. It is the job of the trader to bring buyers and sellers together and earn a profit for doing so.
Traders are responsible for matching buyers with sellers of financial securities, such as stocks and bonds. They might perform trades on behalf of their own firm or other institutions and individual investors, and generally specialize in a segment of the financial markets. In addition to stocks and bonds, traders may specialize in the currency and commodity markets, the latter of which is where raw materials such as oil and gas are bought and sold. While a third party is needed to perform trades in the financial markets, advancements in technology ushered in electronic trading, which caused nearly 50 percent of traders on the New York Stock Exchange to be replaced with computers.
Investment bankers are deal makers. They either work for large financial institutions or smaller, independent boutique investment banking firms. Investment bankers' clients are corporations that hire bankers when they need to raise money from public or private investors. Bankers help companies raise money by issuing equities, which are stocks, or debt, which are bonds, in the capital markets. Generally, a banker will stick to his area of expertise and specialize in a specific market segment, such as mergers and acquisitions, corporate restructurings or initial public offerings, which is when companies sell shares in the stock market for the first time.
Investment bankers are required to be on call for their clients. As a result, investment bankers are known to put in long days and may work an average of 100 hours each week. This takes a toll on bankers, who often experience high feelings of stress and emotional problems due to the demands of the job. Traders have to manage the unpredictability of the financial markets. The stock market, for instance, can lose $1 trillion in a single session and erase trader profits in the mean time. Traders must have a handle on emotions such as fear and greed or they can make investment decisions that wind up costing them money.
When times are good, investment bankers are generally rewarded with bonuses in addition to their annual base salaries. Bonuses can be determined by a bank's financial performance combined with performance in a group and the amount of business that a banker generates, according to a 2012 Bloomberg article. Financial traders with at least one decade of experience can earn at least $1 million per year, which exceeds the take-home pay for a medical surgeon, according to a 2011 Bloomberg article.
- The Wall Street Journal: Hazard of the Trade -- Bankers' Health
- The Wall Street Journal: Flashbacks Afflict Some Traders
- Bloomberg: JPMorgan Investment Bank Bonus Pool Said to Decline Up to 2%
- Bloomberg: Traders' Smaller Bonuses Still Top Pay for Brain Surgeons, 4-Star Generals
- National Public Radio: Ask a Banker -- What Do Investment Bankers Actually Do?
- The New York Times: Life and Death of the Trading Floor
Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.