If the recent financial industry news has brought one thing, it's the sea of opinions on stock brokers and traders. They're all millionaires, walking around New York in their fancy suits, happily guessing where stocks will go as they rake in the big bucks, right? Think again. Here are some Wall Street secrets that go against all these popular beliefs.
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Secret 1: They Don't All Make Millions
If you watch the news, you've heard of the big bonuses some traders make. The secret is that the average stock broker doesn't make anything near the millions we imagine - some actually lose money. Stock brokers make an average of $47,000 a year, and floor representatives $43,800 annually, far from the millions you may think, although the ones working on Wall Street typically do make more.
Secret 2: They Don't All Wear Suits
If you picture a stock broker, do you think of a white shirt, tie and a fancy suit? Think again: many traders and brokers are just regular Joes, working from an office cubicle, spending lots of time on the phone.
These financial professionals often wear casual clothes. Who sees what you're wearing when you're on the phone? Many work from home, far from any trading floor.
Secret 3: They Don't Always Beat The Market
Is a stock going up or down? Sometimes it's easy to tell which direction a market is going; but very often, it's not. Traders and brokers get it wrong all the time; well, 50% of the time. If the recent turbulence in the stock market has taught us anything, it's that even the pros are scratching their heads sometimes. The elements controlling stock values are complex; many mutual funds with highly experienced managers have been beat by the market. The big secret on Wall Street is that trading is not a science. As much as we would all like to predict where the market is going, sometimes even the experts are wrong.
Secret 4: They Aren't All In New York
The hub of the financial industry may seem to be on Wall Street, but the truth is that stock trading is done from around the country - even around the world.
Traders and brokers work from any location, not just from Wall Street. Chances are, there's a trading office right in your home town.
Secret 5: Their Money Doesn't Buy Happiness
Those guys who do get the bonuses - they must be happy as clams, drinking champagne, right? Think again: traders and brokers have among the most stressful lives. Markets are up and down, trading is hectic, and a dip or loss in numbers can feel like the end of the world. Market turbulence often translates into turbulence in life, making a broker's or trader's life a tough one, even for those who have comfortable salaries.
Secret 6: They Don't All Have Privileged Backgrounds
You might think that brokers all come from rich families, or got in with Ivy League educations. The secret is that many traders worked their way up from jobs as clerks and paid their dues before making it on the trading floor. Many brokers working all over the country don't even have college degrees. Just a sharp sense of the market and experience can make you a good broker.
An Ivy League education certainly doesn't hurt to make it on Wall Street; but in the end, it's the work that makes or breaks a broker or trader. (For related reading, see Profitable Investing, Ivy League Style.)
Secret 7: They're Not Just Guessing
It's easy to think that it's all just guesswork on Wall Street - Las Vegas in disguise, with brokers and traders making random bets on the direction of the market. The truth is that it takes a great deal of experience and knowledge, of economics both domestic and international, to be able to navigate the financial markets. For brokers and traders, you're only as good as your bottom line, and it's knowledge and experience that makes or breaks your career, plain and simple.
The Bottom Line
Think you have what it takes to be a broker or trader? The stock market is complex to navigate, with many hopefuls walking away with lighter pockets and crushed spirits. To be a broker for a firm, you need to pass FINRA's (Financial Industry Regulatory Authority) Series 7 exam, which is said to be one of the toughest licensing exams given.
To be successful on Wall Street, knowledge and experience are the name of the game. With these secrets revealed, you certainly have a good place to start. At the very least, you'll know better than to be fooled by those Wall Street stereotypes. (Find out how to decide between these two financial professions. Read Broker Or Trader: Which Career Is Right For You?)
Source: All salary data is from PayScale.com. The salaries listed are median, annual salaries for full-time workers with 5-8 years of experience and include any bonuses, commissions or profit sharing.