ShmoopTube

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Finance a la shmoop what are hard dollars versus soft dollars? okay can we

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make the joke about soft dollars that took viagra no okay all right we won't [Dollars take pills of viagra]

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or maybe we just did okay well whatever so there really is such a thing as soft

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dollars in fact they apply to the manner in which stock brokerages and other

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service vendors to the buy side are paid on Wall Street well on any given trade

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there are somewhere between three and twenty different sellers at the price [Sellers appear]

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the same price like a mutual fund wants to buy a million shares of Disney at 103.34

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and yes for a stock like Disney, Goldman is selling Morgan is

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selling JP Morgan is selling in a gazillion other small banks all around

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the world are selling all at the same exact price well the mutual fund wants

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to do the trade in one block of a million shares not doing little business

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with everyone so they're gonna trade with one bank why would they choose any

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one bank over another? well usually the quality of the banks research or values

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add contribute to who wins that million share trade with the three center share

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Commission for a nice thirty grand pay day but what if the Wall Street mutual fund [Stock market graphs appear on computer screens]

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wanted to purchase specialized trading computer terminals from Bloomberg well

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why wouldn't Bloomberg begin their own trading operation trading stocks

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brokering them and selling them and all that stuff with very little incremental

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capital cost to Bloomberg above what they already do for a living and then

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they themselves Bloomberg offers a million shares of Disney and 103.34

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Well the mutual fund wants to buy 30 grand worth of computer [Computer terminals appear]

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terminals for its traders and it would prefer to not have to write a check in

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cash to buy those so in fact common practice on Wall

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Street is to use yes soft dollars which is kind of another

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word for barter where in the Wall Street firm trades the trade of those million

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shares of Disney to Bloomberg in return for the $30,000 worth of computer

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terminals they soft dollar purchased them and had they paid cash it would

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have been called a hard dollar transaction got it and if your dollars

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are too hard well may we recommend a better moisturizer [Stack of cash with a tube of moisturizer appears]

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soft dollars, hard dollars...

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