Brokers and dealing centers have much in common. They are both associated with securities and focused on profit generation. At the same time, their workflows are different in a number of aspects, including the very source of income.
Courtiers, known also as business transfer agents, are the companies that assist customers in the purchase and sale of assets. They are a sort of intermediaries participating in certain commercial activity. Dealing centers, in their turn, act as independent market players, performing transactions on their behalf.
Major Differences between a Broker and a Dealer
Let us consider the key moments that lead these related notions in radically different directions:
- A commercial agent executes clients’ orders, while a dealmaker trades business on its own behalf, playing a part of a principal.
- A courtier charges commission from customers, while a manufacturers agent collects markups or markdowns, making a market in the security.
- The former have to disclose the amounts of their fees, while the latter have to disclose the very fact of being market makers, hiding successfully the amounts of their markups and markdowns.
- Commercial agents apply to common account types, such as ECN and NDD, which ensure momentary execution of orders at the best price, while dealmakers avoid using such complex systems;
- The former demonstrate all the trading data in a real-time; the latter apply to the supplier of quotes, this is why they can have certain delays;
- With an authorized clerk, a spread is usually narrower, than in the case of a manufacturers agent.
When selling or buying securities, dealing centers render decisions without reference to third parties. They are free to do whatever they hold true in respect of specialties. Brokers do not have this degree of freedom, as they make purchases in compliance with the customer’s needs. They can make their own decisions, but most frequently they are not experienced enough to realize serious profit. This is why authorized clerks prefer to generate income from clients’ commissions instead of taking the risk of independent trading.
They say, when intermediaries grow up they turn into dealing centers. It’s true to certain extent, as manufacturers agents do have to possess more experience, if they want to earn, not lose money. Such companies don’t get any stable income from their clients, as there are no fees and commissions foreseen for their partners. In most cases they have certain assets that they can sell at a later stage of their commercial activity.
Despite all these differences, both brokers and dealers have to adhere to certain regulations and bear serious financial responsibilities.