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Finance: What is a Specialist? 6 Views
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Transcript
- 00:00
Finance allah shmoop what is a specialist I wouldn't have
- 00:06
a movie stallone wait different kind of specialist in finance
- 00:12
land a specialist is the gala guy trading in a
- 00:15
given stock that is there a member of a stock
- 00:18
exchange and they might carry inventory of satan Ten million
Full Transcript
- 00:21
shares of microsoft trading currently at around forty bucks a
- 00:24
share their offering msft for sale at forty point Oh
- 00:28
five and they're our buyer of msft this moment at
- 00:32
thirty nine ninety one and see there's a fourteen cents
- 00:35
a share spread their meaning that they make fourteen cents
- 00:39
every time they transact So let's say that specialist sells
- 00:44
a million shares of microsoft today earning a fourteen cents
- 00:49
spread per share while fourteen cents times a million one
- 00:52
hundred forty grand and clown Nice payday for one day's
- 00:56
work so that's a pretty widespread in the scheme of
- 00:58
things because often brokers have to tack on their own
- 01:01
commission of a few cents on either side and the
- 01:04
specialist might in fact be dealing from their inventory to
- 01:08
brokers on both sides of a transaction in which case
- 01:11
they're spread I even spread to the actual specialist might
- 01:15
Be just a few cents times those million shares like
- 01:18
four cents times a million gets to forty grand Something
- 01:21
like that It's still a really good living but if
- 01:23
it's so good then why don't millions of people fight
- 01:26
for that job Like how hard is it tio Just
- 01:29
nod your head and right down buy or sell and
- 01:32
then a number you think everyone who flips burgers at
- 01:35
mcdonald's and is afraid of robots taking their jobs would
- 01:38
be killing for this gig Well in order to be
- 01:40
a spy specialist not only do you need you know
- 01:43
special education and a few siri's license exams but you
- 01:48
also need capital with which to buy inventory risky inventory
- 01:53
which you'll hold as if they are casino chips and
- 01:56
you are more or less the house So when the
- 01:59
microsoft shares example just to be a specialist in that
- 02:02
one stock well you have to raise something like one
- 02:04
hundred million dollars because you'll have to go into the
- 02:07
market to start and simply by two or three and
- 02:11
call two and a half million shares at around forty
- 02:13
bucks each for a total cost of a condo or
- 02:16
a silicon valley unit that's What a units called out
- 02:19
here and yes that's an investment and the stock could
- 02:22
go up but it could go down as well leaving
- 02:24
you holding a big fat smoldering bag of dog craft
- 02:28
dot com and also going whoever your investors or creditors
- 02:32
workout hundred million dollars Like if microsoft has kind of
- 02:36
evaporated you know what could happen More risks will hunt
- 02:39
your sleep in that the stock and suddenly gap down
- 02:42
three dollars on a bad quarter at which point your
- 02:45
spreads must widen to accommodate expected further volatility in the
- 02:49
stock And you then compete with other specialists who also
- 02:53
make a market in microsoft Well at any given time
- 02:56
they may want to get out of trading in it
- 02:58
and undercut you Buy a penny or two a share
- 03:00
leaving you as the sole big owner of what will
- 03:04
feel like a stock version of the titanic Well the
- 03:07
math gets complex is the market gets volatile specialists use
- 03:10
hedges and human beings end up competing against a i'd
- 03:14
driven black box computers But the reason you exist as
- 03:18
a specialist or rather the key job or responsibility of
- 03:22
the specialist is to provide liquidity That is you have
- 03:26
to buy and sell shares to accommodate the market that's
- 03:30
your job and in volatile markets It means that they
- 03:33
might run out of inventory or be squeezed and have
- 03:36
to buy shares at much higher or sell shares at
- 03:39
much lower prices than their cost But that's the risk
- 03:43
you take when you become a specialist they must execute
- 03:46
on these trades and if they don't they lose their
- 03:48
c This is specialist on the exchange altogether and are
- 03:52
more or less fully out of work And you know
- 03:54
i don't know working for uber lift or something next
- 03:57
Yeah and at that point well they might be willing 00:03:58.973 --> [endTime] Tio take just about anything for a ride
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