Whenever news about the stock market makes the headlines, a new wave of speculation arises about the people who work behind-the-scenes when these market movements occur. Wall Street stockbrokers and traders remain elusive for most people. In fact, they may as well be wizards behind curtains with special powers to influence the economy. And for the majority of people who have never visited the trading floor at the New York Stock Exchange (NYSE) or the center of Manhattan's financial district—the eight east to west blocks from Broadway to South Street in Manhattan—Wall Street may as well be the land of Oz.
There are a lot of misconceptions about securities traders and the people employed by banks and hedge funds on Wall Street. They're all millionaires who walk around New York City in fancy suits, confidently guessing where stocks will go as they rake in the big bucks, right? While there is a little truth to these assumptions, for the most part, these are myths based on media depictions of people employed by the financial industry. Here are seven of the most commonly-held myths about Wall Street.
- There are many misconceptions about securities traders and the people employed by banks and hedge funds on Wall Street.
- The median pay for stockbrokers and other sales agents who sell securities, commodities, and other financial services was $64,770 in 2020.
- Other common misconceptions about stockbrokers are that they all live in New York City, all come from rich families, and all make random Las Vegas-style bets when trading stocks.
What Does It Take to Be a Broker or Trader?
The stock market is complex to navigate, and not everyone makes it out with more money than when they started. The first step to becoming a broker is to pass the Financial Industry Regulatory Authority's (FINRA) Series 7 exam. This test is believed to be one of the toughest licensing exams given, but to succeed on Wall Street—all myths aside—the bare minimum is having the knowledge and experience.
If you want to become a registered broker, the first step is to pass the Financial Industry Regulatory Authority's Series 7 exam.
Myth #1: All Stockbrokers Make Millions
The average stockbroker doesn't make anything near the millions that we tend to imagine. In fact, some lose a lot of money through their trading activities. The majority of companies pay their employees a base salary plus commission on the trades they make. New traders and trainees generally earn an annual salary before they start to reel in a suitable client base. The more clients they book, the lower the salary gets. That's because they're supposed to earn more in commissions.
But just how much can they earn? According to the Bureau of Labor Statistics (BLS), the median pay for stockbrokers and other sales agents who sell securities, commodities, and other financial services was $64,770 in 2020. The lowest 10% in the field earned less than $36,910. The top 10%, on the other hand, did much better, netting more than $208,000 in annual salaries.
One thing to keep in mind is that the professional life of a stockbroker is long. Many tend to put in long hours—more than the traditional 40-hour workweeks. This means they may find themselves working well into the evenings and weekends, too. Hours may vary based on the clients they serve. And since they may serve clients in international markets, some traders may have to start their day before the sun rises or may have to work overnight.
Myth #2: All Stockbrokers Wear Formal Attire
When you imagine a stockbroker, do you picture someone wearing a white shirt with a tie and a fancy suit? The reality is that many traders and brokers would never stand out in a crowd. And their working conditions are less glamorous than you think. Many of them work from an office cubicle, spend lots of time on the phone, and wear casual clothes. It's also true that many stockbrokers work from home—far from any trading floor or corporate office.
In addition, if you imagine a suit and tie when you think of a stockbroker, that's because the underlying assumption is that everyone who works on Wall Street is male. Although gender disparity is still a huge issue in the finance industry, years of research show that some female traders perform better than their male counterparts.
An analysis of 2,800 investors by the Warwick Business School revealed that women outperform men at investing by 1.8%. The study followed male and female investors through Barclays and their trading behavior over a 36-month period. The study showed that annual returns on investments for men were on average a marginal 0.14% above the performance of the Financial Times Stock Exchange 100 Index (FTSE 100), while the annual returns on the investment portfolios held by women were 1.94% above it.
If the right people are paying attention to these statistics, It's likely that the future of Wall Street will include a lot more women.
The percentage of registered brokers who were women in 2017, according to the Financial Industry Regulatory Authority (FINRA).
Myth #3: Stockbrokers Always Beat the Market
Sometimes it's easy to tell which direction a market is going. However, very often it is impossible to predict if a stock is going to move up or down. And traders and brokers get it wrong all the time. Turbulence in the stock market leaves even the professionals scratching their heads sometimes. The elements that influence the valuation of any given stock are complex.
Many mutual funds with experienced managers have been beaten by the market because trading is not a science. Although some stockbrokers would like to believe they've mastered a mathematical formula for predicting returns, these formulas have consistently been proven wrong in the long-term even if they sometimes result in short-term success.
Myth #4: All Stockbrokers Work in New York City
Although the physical location of Wall Street is in New York City, and New York City is also widely considered the finance capital of the world, stockbrokers work from everywhere. There is likely a trading office in the city nearest to you. And there's a very good chance that the person making trades for your investment firm or bank works from home.
Myth #5: All Stockbrokers Are Rich and Happy
You may assume that finance professionals who earn large bonuses drink champagne and toast to the good life all the time. In reality, the lives of traders and brokers are very stressful. The stock market can be volatile, trading is fast-paced and creates a pressurized situation, and any kind of loss can feel catastrophic. And let's not forget the long hours—especially when they first begin their professional careers. When there's turbulence in the market, it can translate to turbulence in the personal lives of brokers and traders.
While a certain amount of money does increase happiness, wealth cannot guarantee emotional or physical health. Many people who work in the finance industry are in a privileged position in terms of their socioeconomic status, but the demands of their profession can have an impact on their well-being. Even the Securities and Exchange Commission (SEC) agrees. In an article published on the SEC's website titled "Day Trading: Your Dollars at Risk," it states that "day trading is an extremely stressful and expensive full-time job."
Myth #6: All Stockbrokers Come From Rich Families
Many people assume that all stockbrokers have Ivy League educations and come from rich families with connections. The reality is that it's possible to work your way up to a position as a trader if you start as a clerk. In addition, if you have a sharp sense of the market, you don't need to have a college degree in order to work as a stockbroker.
Obviously, having an Ivy League education, connections in the industry, and family members already working on Wall Street give an aspiring stockbroker a clear advantage. But once you've made it in the door, your track record of success will be the most important factor to determine how far you will advance in your career.
Myth #7: Stockbrokers Are Just Making Random Bets
Wall Street is not like Las Vegas. It takes a great deal of knowledge about the workings of the domestic and international economy to be able to analyze and interpret the intricacies of the financial markets. Brokers and traders never make random bets. Everything must be carefully calculated, with the client's interests in mind. Successful traders will always base their predictions on knowledge and past experience.