All-Pay Auction

Finance allah shmoop what is a specialist I wouldn't have

a movie stallone wait different kind of specialist in finance

land a specialist is the gala guy trading in a

given stock that is there a member of a stock

exchange and they might carry inventory of satan Ten million

shares of microsoft trading currently at around forty bucks a

share their offering msft for sale at forty point Oh

five and they're our buyer of msft this moment at

thirty nine ninety one and see there's a fourteen cents

a share spread their meaning that they make fourteen cents

every time they transact So let's say that specialist sells

a million shares of microsoft today earning a fourteen cents

spread per share while fourteen cents times a million one

hundred forty grand and clown Nice payday for one day's

work so that's a pretty widespread in the scheme of

things because often brokers have to tack on their own

commission of a few cents on either side and the

specialist might in fact be dealing from their inventory to

brokers on both sides of a transaction in which case

they're spread I even spread to the actual specialist might

Be just a few cents times those million shares like

four cents times a million gets to forty grand Something

like that It's still a really good living but if

it's so good then why don't millions of people fight

for that job Like how hard is it tio Just

nod your head and right down buy or sell and

then a number you think everyone who flips burgers at

mcdonald's and is afraid of robots taking their jobs would

be killing for this gig Well in order to be

a spy specialist not only do you need you know

special education and a few siri's license exams but you

also need capital with which to buy inventory risky inventory

which you'll hold as if they are casino chips and

you are more or less the house So when the

microsoft shares example just to be a specialist in that

one stock well you have to raise something like one

hundred million dollars because you'll have to go into the

market to start and simply by two or three and

call two and a half million shares at around forty

bucks each for a total cost of a condo or

a silicon valley unit that's What a units called out

here and yes that's an investment and the stock could

go up but it could go down as well leaving

you holding a big fat smoldering bag of dog craft

dot com and also going whoever your investors or creditors

workout hundred million dollars Like if microsoft has kind of

evaporated you know what could happen More risks will hunt

your sleep in that the stock and suddenly gap down

three dollars on a bad quarter at which point your

spreads must widen to accommodate expected further volatility in the

stock And you then compete with other specialists who also

make a market in microsoft Well at any given time

they may want to get out of trading in it

and undercut you Buy a penny or two a share

leaving you as the sole big owner of what will

feel like a stock version of the titanic Well the

math gets complex is the market gets volatile specialists use

hedges and human beings end up competing against a i'd

driven black box computers But the reason you exist as

a specialist or rather the key job or responsibility of

the specialist is to provide liquidity That is you have

to buy and sell shares to accommodate the market that's

your job and in volatile markets It means that they

might run out of inventory or be squeezed and have

to buy shares at much higher or sell shares at

much lower prices than their cost But that's the risk

you take when you become a specialist they must execute

on these trades and if they don't they lose their

c This is specialist on the exchange altogether and are

more or less fully out of work And you know

i don't know working for uber lift or something next

Yeah and at that point well they might be willing 00:03:58.973 --> [endTime] Tio take just about anything for a ride