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Finance: What does a stock broker do? 19 Views
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Description:
What does a stockbroker do? Stockbrokers use money from investors to invest in the stock market. Their first job is to go out and find these clients and convince them to invest their money. If their investments are good ones, they can make a lot of money as some of the revenue goes to them through things like fees and commission and some goes to the investor.
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Transcript
- 00:00
finance a la shmoop. what does a stockbroker do? I've been working on the
- 00:08
railroad. yep that's what they do. they broker stocks to customers and while
- 00:14
generally speaking. they take a commission for the privilege of selling
- 00:17
shares of whatever dot-com to their customers or clients. think about stock
- 00:21
brokers like you'd think about home Realtors only stockbrokers are selling [lady celebrates in front of a house's sold sign]
Full Transcript
- 00:25
47 homes a day for five grand each give or take a lot. in the 1970s Commission's
- 00:30
paid on stock and bond trades were massive. back then there were essentially
- 00:35
no connected consumer computers so processing an order was relatively
- 00:39
expensive and there wasn't a whole lot of competition and it took a lot of
- 00:43
infrastructure to make a trade. and there were relatively few players in the
- 00:47
entire industry back then like only three or four big competitors who all
- 00:50
decided to charge about the same very high commission rates .well the small
- 00:54
number of competitors made for a much less efficient market which meant that
- 00:59
the consumer paid a whole lot more per transaction and more meant Commission's
- 01:03
of 3 4 even 5% like buying a hundred shares of a $20 a share stock for 2
- 01:09
grand carried a commission of something like a hundred bucks. a broker making 50 [equation]
- 01:14
of these trades a day did extremely well but oh how times have changed. today a
- 01:19
typical trade might carry a commission of 0.1 percent that same 2 grand trade
- 01:25
today well would pay a commission of something closer to 2 bucks.
- 01:28
yep you heard that right 98 percent less. so the bottom line is that there are way
- 01:33
fewer stockbrokers in existence today and the ones who have survived have to
- 01:37
sell a whole lot more shares or do more volume business for their customers or
- 01:42
if they end up looking like this guy. so what's the daily routine ? well most
- 01:46
brokers specialize in a given area of client institutional brokers
- 01:50
pretentiously called sales traders. well they sell stocks to large mutual funds
- 01:54
hedge funds and other major volume players the order blocks a million units
- 01:59
at a time and they can trade billions and billions of dollars of stocks
- 02:02
through one hot broker. well the demands on that brokers day are
- 02:05
severe and high pressured. the institutional sales trader is expected [woman frowns behind a desk]
- 02:09
to be up and in the office by 5:00 a.m. New York time.
- 02:12
the reports from Europe and Asia leaving myriad voicemails for her customers so
- 02:17
that nervous Nelly by side investors will be encouraged to place their trades
- 02:22
early and often with that broker. at the other end of the spectrum are brokers
- 02:25
for retail customers who sell just a few hundred or thousand shares at a time to
- 02:30
a small group of people who lovingly rely on the broker for actual advice and
- 02:35
are dramatically less sensitive to Commission prices should they be a few
- 02:39
cents a share higher or lower. that broker is a trusted party who's relied
- 02:43
upon to give advice so that Ethel and Ernie Brillstein can retire in the [man frowns, as lady is excited]
- 02:48
lakeside home of their dreams. so what's the money like well on the institutional
- 02:52
side it's extremely volatile. in a good year a good sales trader managing a desk
- 02:57
of a dozen other sales traders can and does make millions and millions of
- 03:01
dollars a year. and this is great because the average tenure of that sales broker
- 03:05
is short .they die either in a bear market or in the form of a coronary
- 03:10
deliver that courtesy of the tightly pressure-packed difficult nature of you
- 03:14
know kind of fighting that war. well life of a retail broker is kinder
- 03:18
gentler and poorer. a good retail broker lasts much longer time usually and ends
- 03:23
up being on the get rich slow plan. such that year after year they're able to
- 03:27
invest some meaningful amount of money in the stock market on their own
- 03:30
watching their wealth grow at turtle pace but with thick hard shells of [investment returns sheet listed]
- 03:34
covering their behind. the qualifications being a stock broker well ?just be good
- 03:38
with people more than anything else. the deep financial knowledge that used to be
- 03:42
necessary for the job has all but evaporated and the job of the sales
- 03:46
trader retail broker is that of regurgitating dialogue written by sell
- 03:50
side analysts and then synthesize by dozens of lawyers before being allowed
- 03:54
out of the bullpen. progress or ladder climbing happens by winning new clients
- 03:59
obtaining new business and increasing the dollar volumes traded through the
- 04:03
front desk. so yeah stock brokers broker stocks .okay that's the to long didn't
- 04:09
listen version. [man frowns]
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