Posted in Finance, Accounting and Economics Terms, Total Reads: 387
The term broker-dealer is used for a person or a firm involved in trading of securities (buying or selling) working as both a broker and a dealer depending upon the type of transaction. A dealer is a person or firm that manages trade transaction as principal (for own account) whereas a broker is a person or firm that acts as the agent of other investors and also acts as an advisor to the investors.
The person or firm that performs both these functions is termed as broker-dealer. In the US security regulation jargon, the tem broker-dealer is used generally for stock brokerages as they act as both brokers and dealers for executing client’s order and for executing their own trade as a dealer or broker respectively.
Broker-dealers perform a number of important functions in financial circles. Some of them include providing investment advice to their customers, market making by holding a certain number of stocks of a particular security to control liquidity supply, allowing trading of securities, conducting research for investment and providing information to the customers and also for raising capital for firms. The size of a broker-dealer may range from small independent boutiques to large subsidiaries of investment banks.