Finance: What does a stock broker do?

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

00:25

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]