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Finance: What is a Specialist? 6 Views


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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

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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