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A normal desk on the trading floor has salespeople on one side and traders on the other. A trader tries to link buyers and sellers of stock, otherwise known as creating markets, and is connected to other traders everywhere. The salesperson actually talks to the clients.
Someone from a hedge fund contacts a saleswoman on the tech desk at Wachovia, for example, and asks what kind of market she can get him on $1 million in shares of IBM stock. Throughout the day, IBM trades anywhere from $124 and $126 a share.
The saleswoman looks up and relays the question to her trader, who might know of another trader at Bank of America looking to sell $1 million in IBM stock for $125.10 a share. The trader tells the saleswoman he can give her a market of $125.12 share. If the hedge fund takes it, the profit for the saleswoman and trader is two cents a share.
Multiply that by a million, and you've got a cool $20,000.
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Reader Comments:
$1 million in shares of IBM at $125.12 per share amounts to 7,992.33 shares. Given that the saleswoman and the trader are making only $0.02 per share in this deal, they will profit $159.85... after dividing the profit between themselves, each will end up with $79.92 for the trade. Far from the cool $20,000 mentioned here.