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What exactly is the difference between a stockbroker, an investment banker, and a trader?

Comments (27)

  • carinazhou's picture

    1 they are pronounced differently
    2 they spell differently
    3 they look differently

  • FreeMarketer331's picture

    Well that's as funny as it is useful...I realize it is a very pedestrian question but I am a newcomer and I would like to learn from someone more knowledgeable; apparently it won't be carinazhou.

    "Give me guys that are poor, smart, and hungry. And no feelings." - Michael Douglas as Gordon Gekko in "Wall Street"

  • ibankinglife's picture

    A stockbroker sells individuals financial instruments and often acts as a financial adviser. You personally will probably have a stockbroker execute orders on stocks, bonds, mutual funds, etc. He is an intermediary between you and the markets.

    A trader either trades securities or derivatives (options) to make profits on the trades themselves (say, a 20% gain on the value), or executes trades and takes a commission from the transaction itself. If the trade is sufficiently large, the commission can be very high.

    An investment banker is an adviser to companies looking to raise money, to buy another company (or sell itself to another company), or to retool how its finances are currently set up. Investment banking groups that raise money are called debt capital markets (DCM) groups (bonds) and equity capital markets (ECM) groups (stocks); ECM handles initial public offerings (IPOs). Buying or selling companies is handled by "industry groups" specific to the companies' industry, and/or mergers and acquisitions (M&A) group. Retooling finances, or reorganizing debt and equity for companies in or about to enter bankruptcy, is handled by the restructuring group. The question arises how investment banks differ from commercial banks; generally, investment banks make money from advisory fees and loan little of their own money, instead matchmaking creditors and debtors (here's where traders may come in).

    There's much more to it but that's an overview. Stockbrokers deal with the public, whereas traders and investment bankers deal with companies.

    -----
    http://ibankinglife.blogspot.com

  • 73142's picture

    The hours worked also varies, with banking being the highest

  • trade4size's picture

    Do you mean a a retail broker or institutional broker? Institutional brokers are closer to traders as they work very large orders and make decisions based on liquidity just like a trader would. But since a broker rarely taking a position its not really fair to call them a trader because they assume no risk and simply charge a commission for execution. Floor brokers on the NYSE make .003 per share. Institutional brokers make between .01 and .05 a share typically.

    "Oh - the ladies ever tell you that you look like a fucking optical illusion?"

    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

  • AgreeWitMe's picture

    Are there traders in ibanks? What exactly is the difference between brokers and traders? brokers make money for clients and traders make money for themselves (the company)?

  • analyst123's picture

    Depends what kind of broker you're talking about. A broker in the interdealer broker category matches buyers and sellers in the stock market. These buyers and sellers are traders normally and, at its simplest, one wants to sell x amount of shares and one wants to buy x amount of shares. The brokers job is to match the two acting as an intermediary, taking a comission for the privilege. Therefore they don't take positions in the market. They just kind of match make traders at ibanks/hedge funds.

  • opt8's picture

    google helps with these sort of define: questions.

  • pbbean's picture

    I'm two years late but I see it like this...

    Traders make tactical trades in which he/she/firm profits from various inequalities in the markets, usually short and very short term. They figure out how to capitalize on the markets. The day-to-day volatility of the markets is critical to the job. It can be very high stress. Traders tend to be smart, industrious, and more "gritty" than brokers. Although there are traders everywhere, NY is the mecca.

    Brokers, which I am, are salesmen that raise money from individuals and institutions and often funnel those funds into the products/opinions that the traders or analysts develop. Their investment horizons for the clients is usually long term investing so the day-to-day volatility is less critical. Brokers are everywhere... tens and tens of thousands of them around the country. They are the tentacles that gather money. BUT - each broker takes on his or her own level of involvement in the tactical/trading decisions of his book of business (ie. one might simply put all the money in funds managed by traders while another might do some tactical trades on his or her own). Brokers need to be relentless and charismatic. You can live anywhere and be a successful broker.

    In my opinion, investment banking carries the most cachet. It is "white shoe." Think Patrick Bateman in "American Psycho." I bankers handle corporate finance, M&A, bringing companies public/private, raising capital for companies. You need to be top tier to get the job. You got to be top tier to keep the job. Horrific hours during early years but certainly six figure pay.

    How difficult is it to break into each field? Let's look at the organization of Morgan Stanley. It is definitely easiest to get a job as a broker (tho damn hard to "make it" and make a living when salary tapers off). At MS, it is much more difficult to get a job as a trader or an investment banker.

  • In reply to pbbean
    Jerome Marrow's picture

    pbbean wrote:
    Lot's of stupid shit.

    Most of that is completely wrong or very incomplete, pbbean. Please no one listen to this.

  • In reply to Jerome Marrow
    pbbean's picture

    Jerome Marrow wrote:
    pbbean wrote:
    Lot's of stupid shit.

    Most of that is completely wrong or very incomplete, pbbean. Please no one listen to this.

    I'm genuinely curious as to how it's wrong or very incomplete. What specifics are wrong or very incomplete? My guess is that you're a broker. I'm a broker myself with zero banana points... you have 45 banana points so I trust you. Please bless the internet blogs with your enlightenment. This is my first time posting something on an internet site so I don't know proper mannerisms but I work out of NYC and LA... if you have some kind of issue with what I said and live in either place, I would love to meet-up and figure it out. I'm not big on internet arguing but I am happy to meet-up so you can tell me about said "stupid shit." Or you can continue writing on websites and living vicariously through your computer.

  • LIBOR's picture

    I find it odd that you made an account to respond to a thread from two years ago...

  • In reply to pbbean
    Jerome Marrow's picture

    pbbean wrote:
    Jerome Marrow wrote:
    pbbean wrote:
    Lot's of stupid shit.

    Most of that is completely wrong or very incomplete, pbbean. Please no one listen to this.

    I'm genuinely curious as to how it's wrong or very incomplete. What specifics are wrong or very incomplete? My guess is that you're a broker. I'm a broker myself with zero banana points... you have 45 banana points so I trust you. Please bless the internet blogs with your enlightenment. This is my first time posting something on an internet site so I don't know proper mannerisms but I work out of NYC and LA... if you have some kind of issue with what I said and live in either place, I would love to meet-up and figure it out. I'm not big on internet arguing but I am happy to meet-up so you can tell me about said "stupid shit." Or you can continue writing on websites and living vicariously through your computer.

    If you have to ask, you're an idiot or just a troll. Both of them are annoying and uninteresting.

    PM me--I'll gladly meet you.

  • pbbean's picture

    LIBOR - I apologize for not creating an account under circumstances that are acceptable to you. What is the appropriate time frame in which it is acceptable to create an account in order to write a comment? I'm not hip to blogosphere culture.
    Jerome - I have to ask, how is the "you're an idiot" comment a specific of the flaws of my initial comment? I don't know what "troll" means but I imagine it has something to do with you still being a virgin at age 22. I don't spend time in Chicago because I'm not Polak that scams people on derivative deals but if you ever make it out of middle America, I'll gladly strip you of your bone Marrow and stuff it down your urethra.

  • pbbean's picture

    Haha. I'm 24 and make 35k. The closest I get to a G5 is listening to rap music.

  • jtbbdxbnycmad's picture

    Stop threatening each over the internet while pretending the other guy is the only one who's doing it, and talk about careers in finance.

    Thanks.

  • In reply to trade4size
    guy21426's picture

    trade4size wrote:
    Do you mean a a retail broker or institutional broker? Institutional brokers are closer to traders as they work very large orders and make decisions based on liquidity just like a trader would. But since a broker rarely taking a position its not really fair to call them a trader because they assume no risk and simply charge a commission for execution. Floor brokers on the NYSE make .003 per share. Institutional brokers make between .01 and .05 a share typically.

    "Oh - the ladies ever tell you that you look like a fucking optical illusion?"

    hahah

  • guy21426's picture

    "Prop Trading- where you invest the firm's own money and make your own trading decisions. Exist mostly at prop trading firms and hedge funds and Investment Banks before the gov banned them.
    Agency Trading- Where you simply execute orders for clients. usually referred to as brokers. Exist at both banks and independent firms called brokerages; difference being that smaller agency-brokers are pure middlemen and only fulfill orders while large banks have a lot more going on.
    Traders are at the top of the food chain - entire teams in the back and middle office support all their trades and fix annoying IT issues for them. They analyze equities, derivatives, fixed income, forex commodities, and anything else they might be trading and decide on what to trade, what strategies to pursue, and how to invest the firms money.
    everyone wants to be a trader, but it's tough unless you have the right education, background, and personal connections.
    After traders decide what to buy or sell they call the broker and say i want to buy/sell XX of XX can you make it happen. Technically brokers suppert the traders but they're completely different from the back and middle office crew.
    unlike the back and middle office, brokers generate revenue - they connect buyers and sellers and make a commission on each successful transaction.
    the more shares that a trader trades through the broker, the more money the broker makes - and the more traders the broker services, the more money he makes."

    From google, discuss

  • trade4size's picture

    guy21426 go fuck yourself I had more knowledge 3 years ago on the subject than you will ever have.

    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

  • Walkio's picture

    There's also a large difference between sell-side and buy-side traders.

  • trade4size's picture

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    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

  • Revsly's picture

    Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard.
    -30 Rock

  • In reply to Revsly
    Hoogerman's picture

    I banana back