Explaining (and partially defending) the massive payouts on Wall Street this year, Fortune editor-at-large Justin Fox hones in on the lucrative trading desks of the big firms:
Much of the profit (just how much is not disclosed) is generated by traders executing tasks for clients—making block trades, structuring derivatives contracts, buying currency for overseas deals, etc. Why is this so lucrative? It’s partly a fair reward for taking risks, partly a byproduct of the knowledge the big firms accrue by being at the center of everything that goes on in global financial markets. They’re profiting from their customers’ comparative lack of knowledge. How long will customers put up with it? As long as they lack knowledge, one presumes.
Why Wall Street Had a Record Year [Fortune]
You’ve got hard spread and soft spread. hard spread is what the traders charge to make a market. Soft spread is what the salespeople can stick the customer for, and should be regulatorily eliminated (i.e. all customers of a given size should get the same price in OTC markets)
I always loved dumb clients when I was in the business. They took good care of me when they thought I was taking good care of them. That is the Wall Street way.
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