Broker vs dealer
Definition · Level 0 · Market basics
Keep reading with Tradecraft
Without an account, you can read three definitions every 30 days. Tradecraft explains all 738 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
The first acts as agent, executing client orders for a commission or fee without taking the other side; the second acts as principal, trading from its own inventory and earning the spread.
Example
Agent on your stock order, principal when it sells you a bond from inventory.
Where Tradecraft teaches it
Level 0 · Market basics, in the lesson “Market plumbing & the trading day”: Who stands between you and the other side of your trade, how it settles, and when US stocks trade.
Related terms
- After-hoursThe US extended session after the 16:00 ET close, typically until 20:00 ET, where many earnings reports first trade: thin liquidity, wide spreads…
- ClearinghouseCentral counterparty that steps between buyer and seller after a trade, becoming buyer to every seller and seller to every buyer; it nets…
- FINRAFinancial Industry Regulatory Authority: the self-regulatory organization, overseen by the SEC, that licenses and polices US broker-dealers and sets…
- LULDLimit up–limit down: single-stock price bands around the average price of the prior 5 minutes (5% or 10% for most stocks above $3); if the quote…
- Market makerA dealer that continuously quotes both a bid and an offer in a security, supplying liquidity, earning the spread and carrying inventory risk.
- Market-wide circuit breakerHalt of all US stocks keyed to the S&P 500’s fall from the prior close: −7% or −13% stops trading for 15 minutes (only before 15:25 ET); −20% closes…