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Finance: What are Hard Dollars v Soft Dollars? 4 Views


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Description:

Using "soft dollars" is really a way of saying "bartering," where a firm may, for example, trade shares in return for inventory, rather than using cash.

Language:
English Language

Transcript

00:00

Finance a la shmoop what are hard dollars versus soft dollars? okay can we

00:09

make the joke about soft dollars that took viagra no okay all right we won't [Dollars take pills of viagra]

00:13

or maybe we just did okay well whatever so there really is such a thing as soft

00:19

dollars in fact they apply to the manner in which stock brokerages and other

00:23

service vendors to the buy side are paid on Wall Street well on any given trade

00:29

there are somewhere between three and twenty different sellers at the price [Sellers appear]

00:32

the same price like a mutual fund wants to buy a million shares of Disney at 103.34

00:37

and yes for a stock like Disney, Goldman is selling Morgan is

00:41

selling JP Morgan is selling in a gazillion other small banks all around

00:45

the world are selling all at the same exact price well the mutual fund wants

00:49

to do the trade in one block of a million shares not doing little business

00:53

with everyone so they're gonna trade with one bank why would they choose any

00:56

one bank over another? well usually the quality of the banks research or values

01:01

add contribute to who wins that million share trade with the three center share

01:06

Commission for a nice thirty grand pay day but what if the Wall Street mutual fund [Stock market graphs appear on computer screens]

01:10

wanted to purchase specialized trading computer terminals from Bloomberg well

01:15

why wouldn't Bloomberg begin their own trading operation trading stocks

01:19

brokering them and selling them and all that stuff with very little incremental

01:24

capital cost to Bloomberg above what they already do for a living and then

01:28

they themselves Bloomberg offers a million shares of Disney and 103.34

01:32

Well the mutual fund wants to buy 30 grand worth of computer [Computer terminals appear]

01:36

terminals for its traders and it would prefer to not have to write a check in

01:40

cash to buy those so in fact common practice on Wall

01:44

Street is to use yes soft dollars which is kind of another

01:48

word for barter where in the Wall Street firm trades the trade of those million

01:53

shares of Disney to Bloomberg in return for the $30,000 worth of computer

01:59

terminals they soft dollar purchased them and had they paid cash it would

02:04

have been called a hard dollar transaction got it and if your dollars

02:07

are too hard well may we recommend a better moisturizer [Stack of cash with a tube of moisturizer appears]

02:11

soft dollars, hard dollars...

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