Markup

What is a 'Markup'

A markup is the difference between an investment's lowest current offering price among dealers and the higher price a dealer charges a customer. Markups occur when dealers act as principals (buying and selling securities from their own accounts, at their own risk), as opposed to brokers (receiving a fee for facilitating a transaction).

BREAKING DOWN 'Markup'

Certain securities are available for purchase by retail investors from dealers who sell the securities directly from their own accounts. The dealer's only compensation for the sale comes in the form of the markup, the difference between the price the security was purchased at and the price the dealer charges to the retail investor. The dealer assumes some risk by acting in this capacity, as the market price of the security in his or her inventory could drop before he/she is able to sell to investors.

Note that most dealers are also brokers, and vice versa, so the term broker-dealer is common.

RELATED TERMS
  1. Markdown

    The difference between the highest current bid price among dealers ...
  2. Dealer Incentive

    A corporate sales strategy in which the price a dealer has to ...
  3. Dealer

    A person or firm in the business of buying and selling securities ...
  4. Purchase and Resale Agreements ...

    An arrangement between the Bank of Canada and dealers whereby ...
  5. Authorized Forex Dealer

    Any type of financial institution that has received authorization ...
  6. Dealer Financing

    Loans that are originated by a retailer to its customers and ...
Related Articles
  1. 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” ...
  2. Personal Finance

    Products With Surprisingly Low Markup

    These products have a very small amount of markup, so when you're making your purchases you can feel good that you're paying a fair price.
  3. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  4. Investing Basics

    What Is A Trading Account?

    A trading account enables an investor to buy and sell securities.
  5. Your Practice

    How Brokers Are Compensated for Selling Bonds

    Find out how brokers are paid for selling bonds and how the transaction costs are passed on to the investor through a markup or commission.
  6. Personal Finance

    5 Ways To Get A Fair Price For Your Gold

    The price of gold continues to go higher and higher. When is the right time to sell, and how do you know if you're getting a good deal?
  7. Personal Finance

    5 Tips For Dealing With Car Dealers

    Negotiating with car salesmen becomes a lot easier if you follow these five easy steps.
  8. Forex Education

    The Foreign Exchange Interbank Market

    Can your forex broker offer you the most competitive pricing? Learn how the market's biggest players affect you.
  9. Trading Strategies

    Beginner's Guide to Trading Fixed Income: Part 3 - Mechanics of trading a fixed-income security

    Part 3 - Mechanics of trading a fixed-income securityNow that we've examined the basic structure of the fixed-income market and some of the challenges facing individual investors, as well as ...
  10. Investing Basics

    An Introduction To Securities Markets

    The global securities market is constantly evolving. Discover the most popular market structures currently in use.
RELATED FAQS
  1. What's the difference between profit margin and markup?

    Learn to differentiate between profit margin and markup, two accounting terms that are often used interchangeably but actually ... Read Answer >>
  2. A person purchases stock XYZ (an Over The Counter stock) from a company who is also ...

    The correct answer is c When the firm is a market maker in the stock then it must act as a principle. Principal is the main ... Read Answer >>
  3. What is the difference between markup and gross margin?

    Read more about the key differences between a company's gross margin and its pricing markup, two rough indicators of business ... Read Answer >>
  4. Why are most brokerage firms owned by banks?

    Learn about the differences between investing with a bank-owned brokerage firm or with an independent broker. Get real answers ... Read Answer >>
  5. What are the main risks associated with trading derivatives?

    Understand derivatives trading and learn about the primary risks usually associated with trading in the derivatives market, ... Read Answer >>
  6. If a foreign currency dealer is quoting a bid-ask spread of $1.0500-35 ...

    The correct answer is: D) Percentage Spread = [(Ask Price - Bid Price)/Ask Price] x 100 = [(1.0535 - 1.0500)/1.0535] x 1 ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center