Difference Between Broker and Dealer (With Table)

A broker is basically an intermediary whose job is to bring the buyer and seller closer and ensure that the transaction is smooth. They mainly earn through the commission that they get from their clients. They are also known as agents. As they mainly take instructions from their clients, they have very little operational flexibility.

Dealers are very important entities in the market. A dealer is an individual who is willing to buy and sell securities on his own behalf with his money. They are independent and take their own decisions. They are also known as market-makers. As they work individually they enjoy full operational flexibility.

Broker vs Dealer

The difference between brokers and dealers is that brokers act as intermediaries between the buyer and seller to carry out a transaction while dealers act as market-makers for the securities. Also, while Brokers trade for their client’s dealers trades for themselves.

Comparison Table Between Broker and Dealer

Parameters of ComparisonBrokerDealer
DefinitionBrokers act as intermediaries between the buyer and seller to carry out a transaction.Dealers act as market-makers for the securities
Party RepresentedA broker executes a deal/transaction on behalf of his/her client.
In simple words, a broker trades on behalf of others.
A Dealer executes a deal/transaction on behalf of himself/herself.
In simple words, a dealer trades on behalf of himself/herself.
The Account usedA broker uses the account of his/her clients to make trades.A Dealer uses his/her personal account to make trades.
Flexibility and freedomA Broker does not enjoy a lot of freedom and flexibility as his/her trades are mainly governed by the instructions he/she gets from his clients.A dealer enjoys full flexibility and freedom as his trades are his own decisions and choices.
Source of EarningA broker mainly earns through commission he charges from his/her clients for the services availed.A dealer earns solely through his tradings.
Position/Relationship with the InvestorA Broker represents an investor.A dealer is an opponent for other investors.
Other NamesBrokers are also known as AgentsDealers are also known as Market-Makers

Who is a Broker?

A broker is basically an intermediary who helps in conducting a smooth transaction between the buyer and seller. The main responsibility of a broker is to bring the buyer and seller closer and help in conducting their transaction smoothly

A broker represents an investor and does not enjoy a lot of freedom and flexibility as his/her trades are mainly governed by the instructions he/she gets from his clients. Also, a broker always uses the account of his/her clients to make a transaction.

A broker mainly earns through the commission he/she charges from his/her clients for availing the services. Brokers have to be registered with FINRA (The Financial Industry Regulatory Authority) They generally manage two types of accounts. These accounts are known as advisory and discretionary accounts.

Who is a Dealer?

Dealers are very important entities in the market. A dealer is an individual who is willing to buy and sell securities on his own behalf with his money. Dealers are independent and take all their decisions on their own.

A dealer should not be mistaken for a trader. A trader trades securities as a part of his/her regular business which is not the case for dealers. Dealers are market-makers they create liquidity and help in promoting long-term growth in the market.

Dealers are required to be registered with the securities and exchange board of India(SEBI) to work. A dealer enjoys full flexibility and freedom as his trades are his own decisions and choices he/she uses his/her own account for making transactions.

A dealer earns solely through his tradings and is a competitor for investors. Unlike Brokers, they neither do trades on behalf of their clients nor use the accounts of their clients to make trades.

Main Differences Between Brokers and Dealers

  1. The main difference between brokers and dealers is that brokers act as intermediaries between the buyer and seller to carry out a transaction while dealers act as market-makers for the securities.
  2. A broker executes a deal/transaction on behalf of his/her client, in simple words, a broker trades on behalf of others while a dealer executes a deal/transaction on behalf of himself/herself, in simple words, a dealer trades on behalf of himself/herself.
  3. A broker uses the account of his/her clients to make trades while a dealer uses his/her personal account to make transactions.
  4. A Broker does not enjoy a lot of freedom and flexibility as his/her trades are mainly governed by the instructions he/she gets from his clients while a dealer enjoys full flexibility and freedom as his trades are his own decisions and choices.
  5. A broker mainly earns through commission he charges from his/her clients for the services availed while a dealer enjoys full flexibility and freedom as his trades are his own decisions and choices.
  6. A Broker represents an investor while a dealer is an opponent for investors.
  7. Brokers are also known as Agents while Dealers are also known as Market-Makers.

Conclusion

Both these terms are very frequently used in the financial market of our country. The main difference between brokers and dealers is that brokers act as intermediaries between the buyer and seller to carry out a transaction while dealers act as market-makers for the securities.

A broker executes a deal/transaction on behalf of his/her client, in simple words, a broker trades on behalf of others while a dealer executes a deal/transaction on behalf of himself/herself, in simple words, a dealer trades on behalf of himself/herself. A broker mainly earns through commission he charges from his/her clients for the services availed while a dealer enjoys full flexibility and freedom as his trades are his own decisions and choices.

A broker has very little operational flexibility and uses the account of his/her clients to make trades. On the other hand, a dealer enjoys full operational flexibility and uses his/her personal account to make trades.

References

  1. https://books.google.co.in/books?hl=en&lr=&id=1cMYDAAAQBAJ&oi=fnd&pg=PP1&dq=dealers+and+brokers&ots=Wgxm5aldUp&sig=ZbXgDlOlP5UUFf6OX1lzw7B2-fY&redir_esc=y#v=onepage&q=dealers%20and%20brokers&f=false
  2. https://heinonline.org/HOL/LandingPage?handle=hein.journals/annrbfl30&div=9&id=&page=
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