Broker vs Dealer: Difference and Comparison

A broker is an intermediary whose job is to bring the buyer and seller closer and ensure the transaction is smooth. They mainly earn through the commission that they get from their clients.

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Business Quiz

Test your knowledge about topics related to business

1 / 10

In case of death or insolvency of a partner the firm is?

Dissolved

Carried on

New owner

None of the above

2 / 10

In business, stakeholders are defined as:

Only the people that purchase goods or services from a business.

Just the vendors that sells to the business.

All the people who stand to gain or lose by the policies and activities of a business.

Only the employees that are effected by the policies of a business.

3 / 10

Over-capitalization results from __________.

payment of excessive amount for goodwill

underestimating the rate of capitalization

raising more money than can be profitably used

raising only the money

4 / 10

A partner in a firm _____.

Can Transfer his shares to an outsider

Can Transfer his shares to an outsider with the permission of partners

Cannot transfer his shares

None of the above

5 / 10

Whose liability is limited to the extent of value of business assets and his private assets?

Partnership Firm

Sole Proprietorship

Co-Operative Society

HUF

6 / 10

Whose Liability is limited to the extent of his capital to the firm?

Owner

Partner

Employee

None of the above

7 / 10

Cash flow is:

Measured as time versus revenue

Is measured by output and input of hours

Money paid to employees

The movement of money into and out of a company

8 / 10

Wages and taxes that a company pays are examples of:

Revenue

Loss

Expenses

Profit

9 / 10

Small scale firms are ____________ flexible in their functioning.

not

less

none of the above

10 / 10

The method of evaluating the efficiency of workers is termed as _________.

merit rating

job evaluation

filing

indexing

Your score is

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 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.

Key Takeaways

A broker is an intermediary who connects buyers and sellers in the financial markets, charging a fee or commission for their services. On the other hand, a dealer buys and sells securities from their own account, earning a profit on the spread between the buying and selling prices.

Brokers do not hold securities in their accounts, while dealers are active market participants willing to buy and sell securities on their accounts. Brokers may provide investment advice, while dealers are primarily concerned with executing trades.

Brokers may work for clients as individuals, institutions, or corporations, while dealers are part of larger financial institutions, such as banks or investment firms.

Broker vs Dealer

Brokers carry out security trades on behalf of the investors, while the Dealer carries out security trades on behalf of themselves. Broker has fewer rights and freedom in buying and selling securities. The broker gets paid a commission for transacting the business, while dealers don’t receive any commission.

Comparison Table

Parameters of Comparison	Broker	Dealer
Definition	Brokers act as intermediaries between the buyer and seller to carry out a transaction.	Dealers act as market-makers for the securities
Party Represented	A 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 used	A broker uses the account of his/her clients to make trades.	A Dealer uses his/her account to make trades.
Flexibility and freedom	A Broker does not enjoy much 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 decisions and choices.
Source of Earning	A broker mainly earns through the commission he charges from his/her clients for the services availed.	A dealer earns solely through his trade.
Position/Relationship with the Investor	A Broker represents an investor.	A dealer is an opponent of other investors.
Other Names	Brokers are also known as Agents	Dealers are also known as Market-Makers

Who is a Broker?

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

A broker represents an investor and does not enjoy much 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 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 must be registered with India’s Securities and exchange board (SEBI) to work.

A dealer enjoys full flexibility and freedom as his trades are his decisions and choices. He/she uses his/her account for making transactions.

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

Main Differences Between Brokers and Dealers

The main difference between brokers and dealers is that brokers act as intermediaries between the buyer and seller to conduct a transaction. In contrast, 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 uses the account of his/her clients to make trades, while a dealer uses his/her account to make transactions.
A Broker does not enjoy much freedom and flexibility as his/her trades are mainly governed by the instructions he/she gets from his clients. In contrast, a dealer enjoys full flexibility and freedom as his trades are his own decisions and choices.
A broker mainly earns through the 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 represents an investor, while a dealer is an opponent for investors.
Brokers are also known as Agents, while Dealers are known as Market-Makers.

References

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Chara Yadav

Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.