Difference between Broker and Dealer
Key Difference: Brokers are the agents who play a role of inter-mediator between a buyer and a seller for carrying out the transactions. On the other hand, dealers are the market makers for the securities.
In layman’s terms, a broker is a person or a firm that conducts the transactions on behalf of a client. The type of transactions may vary. Brokers play a vital role in financial transaction in a stock market. They are paid commission fees in exchange of the services provided by them. Generally, they handle two types of accounts, known as advisory and discretionary accounts.
Dealer refers to a person or a company that trades securities on its own behalf. Therefore, the dealer is a principal in a transaction. Unlike broker, he neither conducts business on behalf of his clients, nor does he try to act as a catalyst for the transactions.
Some of the differences are listed below:-
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Brokers |
Dealers |
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Definition |
They are the agents who play a role of inter-mediator between a buyer and a seller to carry out a transaction. |
They are the market makers for the securities. |
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Main characteristic |
They charge commissions for their services. |
They maintain an inventory and offers to buy at the bid price. Later offers to sell at the asked price. |
|
Types |
Full-service brokers provides execution and advice and charge the highest fees.
Discount brokers provides execution only. |
Institutional market makers can be banks or other large corporations that usually offer a bid/ask quote to other banks, institutions.
Retail market makers are usually companies dedicated to offer retail trading services to individual traders. |
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Securities are traded |
On buyer’s or seller’s behalf |
Dealers have all the rights and freedom regarding the buying and selling of securities |
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Freedom |
Brokers have restricted freedom and rights. |
Comparatively more freedom and rights. |
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Other names |
Agent |
Market-maker |
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Relationship with investor |
Represents investor (Represents the order, finding opposite sides of the trade) |
Opponent of investor (They benefit from a higher bid/ask spread.) |
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Comments
This Web site is really good & nicely terms the difference in between two things which looks like same but appears to be different. e.g. Curd & Yogurt, Interest & Yield etc. keep up good work - really informative.
Sudhir Bhogade
Thu, 02/27/2014 - 13:33
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