Dealer

AAA

DEFINITION of 'Dealer'

A person or firm in the business of buying and selling securities for their own account, whether through a broker or otherwise. A dealer is defined by the fact that it acts as principal in trading for its own account, as opposed to a broker who acts as an agent in executing orders on behalf of its clients. A dealer is also distinct from a trader in that buying and selling securities is part of its regular business, while a trader buys and sells securities for his or her own account but not on a business basis.

INVESTOPEDIA EXPLAINS 'Dealer'

While “dealer” is a separate registration category in the U.S., in Canada the term is used as the shortened version of “investment dealer,” which is the equivalent of a broker-dealer in the U.S.

Apart from buying and selling securities, a dealer also makes markets in securities, underwrites securities and provides investment services to investors. Most dealers also act as brokers, and are therefore known as broker-dealers. Broker-dealers range in size from small independent houses to subsidiaries of the largest banks.

The Securities and Exchange Commission (SEC) requires that all brokers and dealers generally register with it, and also be members of the Financial Industry Regulatory Authority (FINRA). The SEC requires that individuals who engage in the following activities may need to register as a dealer:

  • Someone who holds himself/herself out as being willing to buy and sell a specific security on a continuous basis, i.e. is making a market in that security;
  • A person who runs a matched book of repurchase agreements; or
  • An individual who issues or originates securities that he or she also buys and sells.

The SEC requires dealers to perform certain duties in their dealings with clients. These duties include prompt order execution, disclosure of material information and conflicts of interest to investors, and charging prices that are reasonable in the prevailing market.

In recent years, the profitability of dealers has been challenged by a number of factors, including the heightened regulatory environment (which has increased compliance costs), increasing technology requirements to keep up with rapidly changing markets, and industry consolidation.

RELATED TERMS
  1. Dealer Market

    A financial market mechanism wherein multiple dealers post prices ...
  2. Interdealer Market

    A trading market that is typically only accessible by banks and ...
  3. Dealer Incentive

    A corporate sales strategy in which the price a dealer has to ...
  4. Broker-Dealer

    A person or firm in the business of buying and selling securities, ...
  5. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  6. Agent

    1. An individual or firm that places securities transactions ...
RELATED FAQS
  1. What role does the 'chip cycle' play in the electronics sector?

    There are several highly acclaimed private Series 6 Exam courses in the United States. Many can be completed online. Popular ... Read Full Answer >>
  2. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Full Answer >>
  3. Do traders, market makers, specialists or others ever deliberately drive a stock's ...

    Many individual investors have had the experience of closing their position in a stock only to see the price rebound moments ... Read Full Answer >>
  4. What's the difference between a Nasdaq market maker and a NYSE specialist?

    What's the main difference between a specialist and a market maker? Not much. Both the New York Stock Exchange (NYSE) specialist ... Read Full Answer >>
  5. What is the difference between a quote driven market and an order driven one?

    The difference between these two market systems lies in what is displayed in the market in terms of orders and bid and ask ... Read Full Answer >>
  6. What is the interest rate offered on a typical margin account?

    Interest rates on margin accounts vary according to the size of the loan and the brokerage firm being used. Generally, interest ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Market Participant Playbook

    Find out what effect institutional investors have on the stock market and individual traders.
  2. Investing Basics

    What Is A “Broker-Dealer” And Why Should You Care?

    For many investors, the financial services industry is a strange and mysterious place filled with a language all in its own. Terms like “alpha,” “beta” and “Sharpe-Ratio” ...
  3. Investing Basics

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  4. Forex Education

    Market Makers Vs. Electronic Communications Networks

    Learn the pros and cons of trading forex through these two types of brokers.
  5. Forex Education

    How To Place Orders With A Forex Broker

    Learn how to set each type of stop and limit when trading currencies.
  6. Options & Futures

    Brokers and Online Trading

    How do you find the right broker for your investment needs? Start by reading our broker tutorial.
  7. Investing Basics

    Is Your Broker Churning Your Account?

    Is your broker churning your account to generate fees? Here's how to know and what recourse you have.
  8. Investing Basics

    Shareholders: Vote Your Proxy and Be Heard

    Voting shares, in person or via proxy ballot, is a right every shareholder should exercise. Here's why.
  9. Professionals

    What Does a Broker Do?

    In the investment world, broker is a term used to refer to an individual or entity that helps facilitate trading in financial securities.
  10. Economics

    What is Joint Tenants with Right of Survivorship?

    A type of brokerage account where a surviving member inherits the other member's share of account assets upon the death of that other member.

You May Also Like

Hot Definitions
  1. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  2. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  3. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  5. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  6. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!