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What is a Dealer?

A dealer is a person or entity acting as principal and not as agent in the purchase and sale of securities. The dealers trade in their own risk and behalf, in contrast to brokers (agents), who trade only on behalf of their clients.

One can say that the dealer buys/sells assets in their own name and them sales/buys theses assets to its customers changing the price in his favor while the broker buys/sells assets in the client's name charging a commission. That is, the dealer acts as counterparty to the transaction while the broker does not (excep for the Market Makers), which means that the dealer resembles a reseller market.

For the broker, the benefit received (spread) is a commision for the profits generated by financial transactions made. The dealer, in turn, get benefits from a more traditional way, namely by the difference between the purchase price and the sale price of securities with which the dealer make financial transactions. Thus, the dealer makes a profit on their own.

Main role of dealers

The dealer plays an essential role in the stock market, namely through the inyection of liquidity. However, the dealer, acting on their own, also carry the risk of their transactions in the market, so that, just as they are the beneficiaries of the total amount of profits generated by their transactions, they are the main victims of losses.

Thus, given a market transaction, the dealer would be a party of the transaction, regarding his client, who buys/sells some value. In this case, it is very similar to a traditional commercial transaction, in which there is a buy-sale relationship between a seller and a customer, the first aims to buy at the best price, the second aims to sell at the best price. The dealer, in this regard must try to profit from the sale of the securities purchased. The dealer is very similar, as explained here, to a dealer who buys products from the manufacturer to sell at retail.


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