All firms have brokers and dealers —
though at the smallest ones, the same people may play both roles.
A broker,
also known as a stockbroker or financial adviser, takes buy-and-sell
orders from individual and institutional clients and acts as their
agent in placing the transaction. Depending on the size of the
order, trades may be sent to an exchange
floor
broker,
a
market
maker,
or an electronic order-routing system.
Brokers may collect a commission based on
each transaction or charge you an annual fee based on the value
of your account. The fee-based arrangement is becoming more common
as an increasing number of brokers act as financial advisers.
A
dealer,
also known as a principal, buys and sells securities for the firm's
account rather than for a client. For example, if you give your
broker an order to sell shares, the firm might buy them. Or, if
you want to buy, your shares might come from the firm’s inventory.
The firm will tell you when your order is confirmed.
Dealers make money on the difference between
what they pay to buy a security and the price at which they sell.
A
trader
who works for a broker-dealer handles
the firm’s securities transactions. There are also
registered
competitive traders
who buy and sell
securities for their own accounts.
