Comments (6)

May 6, 2010

Due to reduced commissions and the proliferation of online investment management, the role of a traditional (retail) stock Bud Fox... has mostly merged into a private wealth/financial adviser role. Now, there is certainly a difference between real private wealth, and Ameritrade financial advisors, but for all intents and purposes, that is all the "retail" side.

The other type of "stock broker" is on the institutional side. As the name implies, these brokers serve institutions, hedge funds, pension funds, et al. Whereas the retail broker might buy or sell 500 or a 1000 shares of XYZ, an institutional broker will be doing five, six, and 7 figure blocks at a time. The position can come in several forms. At a large brokerage (BB) you will probably have both a (research) salesman and a trader. They will usually visit clients together, going to dinners, sporting events, having to laugh at jokes, pretend the other guy's kids are interesting etc. Then, when that client on the buy-side gets an order from his PM to sell 50,000 XYZ, he might call up the sales-trader to execute the trade, paying .05/share, with a portion of that going to pay for research from the brokerage (soft-dollars).

There are also third market sales-traders (cantor fitzgerald, knight, jefferies, many others) who are strictly traders. It's all based on relationship. Your best buddy is a trader at SAC, so he gives you orders. If you are good friends he might give you a lay-up, like 100,000 CSCO, and pay him .02, .025, maybe .03 per share. Or, more typically, your client (a hedge fund), might be trying to quietly get rid of 500k shares of a stock that isn't very liquid. So they use the broker to find a buyer or several buyers for the whole piece and trade it all at once (crossing stock). At these places the traders get to keep a much larger part of their commissions but have no guarantees. If you have some decent relationships you can make serious loot on this side of things. And we're talking wearing flip flops and working 40 hours a week.

Best case, you work at a BB where they give you the clients but dont pay out high commissions, develop good relationships, then bring the client with you to a third market shop.

May 6, 2010

Good post, the last 2 paragraphs describe what is known as "Institutional Traders"

Weeden & Co is a huge player in the Block Institutional Trading world. They have their own dark pool aggregator as well, which allows Hedge Funds like the one in Paragraph three to place block trades on a "third" market so as the rest of the world has no idea the biggest hedge fund in the world just sold its entire position of XYZ.

I would imagine third market trading is more expensive, like .07 or so a share. I know that BB's do most institutional at .04 a share for the semi-block range

May 7, 2010

Thank you for your confirmation. I have been doing it for 4 years. No one has seen .07 since the early 2000's. You're lucky to get .025. I've seen plenty of .01 business. .04/share at BB seems reasonable these days, but still very low considering you're soft-dollaring half of it. Before decimalization, and even right after, commissions were much much higher, but of course liquidity was lower.

I'm not sure that Weeden is a huge player in anything, but they certainly are one of many in the third market space. Every brokerage has access to ust about every dark pool, and liquidnet beats them all. I can't say that I've ever heard of a weeden product but I'm sure its out there.

Mar 17, 2011

thank you guys for your informative posts....i was wandering as to what the salary/ commission difference is between an institutional stockbroker and a private wealth broker?

thanks a lot

Mar 30, 2011


Apr 3, 2011