Sales and Trading Interview Preparation

Vocabulary practice flashcards covering interview structure, behavioral questions, macroeconomics, fixed income, equity derivatives, foreign exchange, structured products, and corporate finance concepts for Sales and Trading interviews.

HireVue

A first-round video screening interview consisting of 5 to 7 pre-set questions reviewed by HR or HR alongside a sales and trading professional, lasting approximately 15 to 25 minutes.

Superday

The final interview round at a large bank typically consisting of three one-on-one interviews with sales and trading professionals, each lasting 20 to 25 minutes.

Market Making

Facilitating client trades in size by quoting a bid, offer, or spread while warehousing residual risk, as distinct from pure proprietary trading.

Volcker Rule

A provision of the Dodd-Frank Act that sharply limits commercial banks from taking proprietary trading positions purely to speculate rather than facilitate client flow.

DV01

The dollar value change in a fixed-income position for a one basis point ($0.01\%$) move in yield, utilized in rates trading to hedge net exposure to zero.

Federal Reserve Dual Mandate

The statutory objective of the Federal Reserve to promote price stability (targeted at an inflation rate of $2\%$) and achieve maximum sustainable employment.

Fed Funds Rate

The target interest rate set by the Federal Reserve for overnight lending between commercial banks, which sat at a target range of $0\%$ to $0.25\%$ in late 2020.

Yield Curve

An interpolated graphical curve plotting the yield of benchmark bonds across differing maturities for a specific government debt issuer.

Delta Hedging

An options risk-management strategy that eliminates directional market exposure by taking an offsetting long or short position in the underlying asset proportional to the delta.

Credit Spread

The yield difference between a corporate bond and a benchmark government bond of matching duration and maturity (for example, Treasuries).

Fallen Angels

Bonds that were originally issued with an investment grade credit rating but were subsequently downgraded into high yield territory.

Mortgage-Backed Security (MBS)

A securitized bond that pools residential mortgages and distributes monthly cash flows of principal repayments and interest from homeowners to investors.

Prepayment Risk

The risk in mortgage-backed securities that borrowers pay off principal earlier than projected (via refinancing, home sales, or extra payments) when interest rates fall, forcing reinvestment at lower yields.

Extension Risk

The risk in mortgage-backed securities that rising interest rates suppress refinancing and prepayments, causing expected cash flows to stretch out over a longer duration.

Treasury Inflation-Protected Securities (TIPS)

U.S. government debt securities indexed to inflation that pay a fixed coupon rate above the Consumer Price Index (CPI), locking in a guaranteed real rate of return.

Fixed-for-Floating Interest Rate Swap

A derivative agreement where one counterparty exchanges a fixed periodic payment stream for a floating rate benchmark (such as 3-month LIBOR or SOFR) plus a spread, having zero net value on day one.

LIBOR (London Interbank Offered Rate)

A historical benchmark reference rate calculated daily from bank submissions indicating unsecured borrowing costs in the London interbank market, phased out in favor of SOFR.

SOFR (Secured Overnight Financing Rate)

A transaction-based benchmark rate created to replace USD LIBOR, reflecting the cost of overnight borrowing cash collateralized by U.S. Treasuries.

Pip

The smallest standard price quote increment in foreign exchange trading, typically representing $0.0001$ for most USD currency pairs.

Collateralized Loan Obligation (CLO)

A securitized financial instrument that pools leveraged corporate bank loans and issues prioritized bond tranches possessing varying levels of risk and return.

Equity Tranche

The bottom, unrated tranche of a structured product like a CLO that absorbs initial loan default losses and captures residual excess cash flows if few defaults occur.

Special Purpose Vehicle (SPV)

An independent, bankruptcy-remote legal entity that functions as the central hub at CLO issuance by holding collateral loans and issuing debt notes.

General Obligation (GO) Bonds

Municipal bonds backed by the full faith, credit, and taxing authority of the issuing state or local government entity.

Revenue Bonds

Municipal bonds backed solely by the revenue generated from a specific public infrastructure project, such as toll roads, utilities, or hospitals.

Tax-Adjusted Yield

The equivalent taxable yield for a tax-exempt municipal bond, calculated as: $\text{Tax-Adjusted Yield} = \frac{\text{Quoted Yield}}{1 - \text{Tax Rate}}$.

Marked-to-Market

The accounting practice of revaluing trading assets and securities daily based on current fair market prices rather than historical acquisition costs.

Basel 3

An international regulatory accord developed by the Bank for International Settlements (fully implemented in 2019) that mandates capital adequacy and liquidity coverage standards for banks.

Purchasing Managers Index (PMI)

A monthly macroeconomic indicator derived from corporate supply-chain surveys; readings above $50$ signify economic expansion, while values below $50$ denote contraction.

5y5y Swap Rate

A forward-looking market measure of inflation derived from a 5-year swap starting in 5 years, reflecting institutional expectations of long-term inflation.

Non-Farm Payrolls

A key U.S. economic report published on the first Friday of each month by the Bureau of Labor Statistics tracking the monthly net change in non-agricultural payroll employment.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization; an operating profitability metric that strips out debt structure, tax rates, and non-cash accounting disparities to facilitate cross-company comparisons.

Enterprise Value (EV)

The total economic acquisition value of a company, calculated as: $\text{EV} = \text{Equity Value} + \text{Preferred Stock} + \text{Total Debt} + \text{Minority Interest} - \text{Cash and Equivalents}$.

Unlevered Free Cash Flow (UFCF)

Cash flow available to all capital providers before debt obligations, calculated as: $\text{EBIT} \times (1 - \text{Tax Rate}) + \text{D\&A} - \Delta\text{Working Capital} - \text{Capex}$.

Repurchase Agreement (Repo)

A short-term secured financing transaction where an asset owner sells a security and agrees to repurchase it at an agreed date and higher price, functioning economically as a secured loan.

Delta

An options Greek measuring the sensitivity of an option's theoretical value relative to a unit price change in the underlying asset.

Gamma

An options Greek measuring the rate of change in an option's delta for a move in the underlying asset price, representing the curvature or convexity of the option value.

Theta

An options Greek measuring the absolute decline in an option contract's premium over time, also referred to as time decay.

Vega

An options Greek (also known as kappa) measuring the change in an option's price for a $1\%$ move in assumed implied volatility.

VIX

A real-time index tracking market expectations of 30-day volatility in the U.S. stock market derived directly from S&P 500 index option prices.

Convertible Bond

A fixed-income corporate security containing an embedded call option that grants the investor the right to convert the debt into a predetermined number of common shares.

Current Yield

A fixed-income return metric computed strictly as the annual coupon payment divided by the bond's current trading price: $\text{Current Yield} = \frac{\text{Annual Coupon}}{\text{Bond Price}}$.

Yield to Maturity (YTM)

The total anticipated annualized return on a bond held until maturity, reflecting both periodic coupon income and the amortized capital gain or loss toward par value.