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Broker-Dealer

A broker-dealer is a financial firm or individual that acts both as a broker (facilitating transactions on behalf of clients) and as a dealer (buying and selling securities for its own account). Broker-dealers play a critical role in the financial markets by providing liquidity, executing trades, and offering investment products and services to clients. As brokers, they execute orders for clients, earning commissions. As dealers, they trade securities from their own inventory, aiming to profit from the spread between the buying and selling prices.

Example

A broker-dealer firm might help a client buy shares of a company, acting as a broker. The same firm might also buy and sell bonds from its inventory to capitalize on price differences, acting as a dealer.

Key points

• A broker-dealer acts both as a broker and a dealer in financial markets.

• As brokers, they execute trades for clients, earning commissions.

• As dealers, they trade securities for their own account, aiming to profit from price spreads.

Quick Answers to Curious Questions

A broker facilitates trades on behalf of clients and earns commissions, while a dealer buys and sells securities for its own account, profiting from the spread between buy and sell prices.

As dealers, they trade from their own inventory, providing liquidity to the market, while as brokers, they facilitate client transactions.

Yes, broker-dealers are regulated entities that must register with financial authorities such as the SEC in the United States.