Once you get past the myriad of suits that would make Barney Stinson's little heart pitter-patter, the good 'ole boys club and the frantic glamour of Wall Street, it boils down to buying and selling. Essentially, there are two paths a career can take on Wall Street.
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But it is more than simply buying and selling commodities. Both codependent components of Wall Street play different roles in the market. Are you working on making the deals (buy side) or working the public market (sell-side)? There is what is called a "Chinese wall" dividing the exchange of information between the sides. Even if a firm has both components, like large JP Morgan, there could be a negative impact if the sides exchange information. So the sides do not routinely share information. The buy side is primarily focused on buying large amounts of securities for money-management. Mutual funds, pension funds, insurance firms, hedge funds, private equity, asset managers, and venture capitalists make up the buy side.
Those on the buy side have large pools of capital and tap into their own resources to make investments. Money is made when researched investments pay off. For example, a private firm or a retail conglomerate finds a trending or unique company. The investors invest in or purchase a small indie company. The indie company does exceptionally well, and the investors profit substantially. Spotify, Facebook, or L'Oreal purchasing Essie are good real world examples.
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As an analyst on the buy side, your findings are kept as secrets within the company, since research determines acquisitions and investments. Secrecy is essential to identifying underpriced assets or opportunities in the marketplace. You do not want another firm to beat you to the punch. A buy side analyst tends to make more money with a relatively less workload than those on the sell side. However, deeper analyzing and risk taking is required, therefore, more mental work. A switch from sell side to buy side is more common than buy to sell.
Buy side will use sell side generated reports as the foundation of their research and use prices set by the other side to make investments decisions. Sell side is often viewed as providing services for the buy side.
The sell side of finance is made of investment banking, commercial banking, stockbrokers, market makers, and corporations. Sell side includes the Bond Market, Foreign Exchange, and Stock Market. An analyst on the sell side is focusing on stock prices, company, and industry performance and financial analyst and trends. Their findings are often public and used in journalistic reports. Since market prices can change instantly, an analyst has little downtime and needs full focus.
Let say that same indie company becomes profitable enough for an Initial Public Offering. A stockbroker or an individual investor can now purchase equity in the company. A sell side analyst will track the company and industry's performance to make recommendations and financial forecasts. He will make his money off commissions. The more equity he convinces other people to buy, the more he makes.
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When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.