Equity Capital Markets Vs. Trading
While both ECM and trading are prestigious and desirable career paths, they differ in their nature, day-to-day responsibilities, and requirements. Equity capital markets are part of the capital markets division and work involves helping clients raise capital. Responsibilities include a lot of financial modeling, relationship management with third parties, and pitching. Trading, on the other hand, is an execution role that aims to act in the best interest of the client.
The job is dynamic and requires strong knowledge of the financial markets and operations, along with relationship management skills as there is significant interaction with market makers and other dealers. Unlike roles in private equity, neither ECM nor trading requires an MBA or a CFA designation, although both can be advantageous. Instead, practical and industry knowledge gained through internships and work experience tends to be most valuable.
Key Learning Points
- Both ECM and trading are highly sought-after career paths that offer dynamic and interesting work, along with very competitive compensation.
- However, the number of positions available is limited, which makes competition to break into the industry fierce.
- Equity capital markets are part of the wider capital markets division, and the objective is to help clients raise capital.
- The trading desk is responsible for executing client orders and each desk within the department tends to specialize in a specific area, for example, equities or fixed income.
What is ECM?
The equity capital market is a sub-sector of the capital markets and encompasses a broad range of instruments and activities. ECM also works with a diverse group of market participants including investment banks, venture capital, and private equity firms as well as broker-dealers. From a primary market perspective, ECM helps companies raise capital by issuing new securities.
This can be done by listing the company on an official exchange through an initial public offering (IPO), or alternatively through a private market placement, where companies raise equity through unlisted shares that are sold directly to investors. Any follow-up operations are done on the secondary market, where no new capital is raised. This includes buying and selling existing shares on stock exchanges or over-the-counter (OTC), where dealers trade directly with each other without going through an official market exchange.
What is Trading?
As its name suggests, the trading floor is where the buy and sell transactions within a financial institution occur. The trading segment includes different desks that specialize in a specific market segment or security type, for example, equities, fixed income, foreign exchange (FX), commodities, or derivatives. To ensure the best outcome for their clients, traders use electronic trading systems (ETS) or market makers, who provide liquidity and depth to markets. They work closely with sales teams, who provide investment ideas to institutional and wealthy investors and help clients in restructuring financial products.
Trading desks generate revenues by charging a commission for executing transactions – for example, a pension fund gives orders to the equity trading desk within an investment bank, which in turn charges a fee for each trade.
Education and Skills
As already mentioned, obtaining a position in either ECM or Trading can be difficult since the competition is intense. As with other roles in investment banking, along with relevant internships and certifications, the academic background is important. Candidates are expected to have at least a bachelor’s degree in a financial discipline from a recognized institution (meaning it features in university rankings such as the FT, The Guardian, or The Times, for example – the higher the rank, the better) and have sound knowledge of financial markets.
For mid to senior-level positions, there are a number of regulatory exams to pass to obtain the license required to hold a specific position (this is more relevant to trading), which combined with a postgraduate degree would make a candidate competitive. Nevertheless, strong knowledge of the market and experience (ideally gained with a competitor) matters the most.
Although positions in ECM and Trading can be quite different, some of the key skills required for a successful career in either include:
- Precision and attention to detail
- Strong oral and written communication skills
- The ability to handle complex issues and manipulate data
- Talent for relationship management
- Knowledge of finance, the financial markets, and trading operations
The Chartered Financial Analyst (CFA) designation is one of the most respected qualifications in the industry and enhances any resume. However, unlike in asset management or private equity where responsibilities include managing money and portfolios, it is less applicable to some roles in ECM and trading.
Exams tend to be more tied to local regulations and practices; for example, in the US those working in ECM tend to take the FINRA Series 7, 63, 79 exams, while in the UK typically the preferred qualification is the Capital Markets Program offered by the Chartered Institute for Securities and Investments. In trading, relevant certifications include the CISI’s Advanced Certificate in Global Securities Operations or the Diploma in Investment Operations.
If you are interested in a career in Trading or looking to change roles, our online trader course covers all aspects of equity sales and trading at an investment bank and will help you master practical skills you can use from day one on the job.
Similar to many positions in investment banks with client-facing responsibilities, both ECM and trading require longer working hours. The hours in equity capital markets are highly dependent on the current workload and what deals are in the pipeline. Generally, the more deals, (and the significance of the transaction), the longer the hours required. During a relatively busy period, hours could easily exceed 60 per week and some work on the weekend could be required. On the other hand, Trading offers more stable hours, within the 50-60 hour weekly range. Traders are rarely seen working into the night and weekends are completely free.
Salaries in ECM are typically on par with those in DCM (debt capital markets) or M&A (mergers and acquisitions). At the analyst level (in larger organizations), candidates may expect a base salary of around $100k and up to a 50% annual bonus, while at the associate level the base can go up to $150k with a performance-related bonus of between 50-100%. Entry-level traders may expect a base salary of around $80k and up to a 50% annual bonus. The base and bonus increase as the trader moves up in the hierarchy.
Although in recent years investment banks are making efforts to improve work-life balance, particularly for those in client-facing roles, long hours and a limited personal life are still the norm at many institutions. Those working in ECM at large banks should be prepared to dedicate most of their time to the job but can expect high compensation in return. For those who enjoy the dynamics of the market but want to have more personal time, trading may be a good fit.
Typically, ECM professionals tend to have many exit options. Due to their excellent understanding of equities and different industries, other career opportunities include trading, research, investment management, or corporate finance roles that require financial modeling skills.
On the other hand, trading requires a different skill set and typically does not offer the same exit options. It is an execution role and most of those who wish to switch go for similar roles in asset management, which provides better work-life balance, or hedge funds. Some traders may choose to start their own firms, although this is less popular and comes with higher risk.
Overall, when comparing opportunities in ECM and Trading, candidates should consider the total compensation and workload, but also potential career exits and work-life balance. ECM typically offers a higher salary and more exit options but is also quite demanding in terms of hours. On the other hand, trading allows more personal time without a big sacrifice on the pay side, but potential exit opportunities are more limited.