Soft dollars

Soft dollars refers to commissions generated on both agency and pricipal trades.

is it that the commissions here refers to the cost clients pay to broker? if so how come it is the soft dollar? because soft dollar is what broker pays to ananlyst in exchange for their trade referal.

please add some comment

Hi,

From my understanding, in layman terms:

  1. Portfolio manager executes a large trade through broker A

  2. Executing Broker A earns money (commission) for providing the service. This commission could also be generated from the use of spreads in the trade, akin to Retail Money Changer in my opinion.

  3. Broker A keeps portfolio manager happy by giving him research material

  4. This arrangement to give portfolio manager research material is soft dollar arrangement.

Great question, i never really understand this contradicting concept. Thanks fr asking n answering guys