The difference between a broker and a dealer is that the broker carries out the buying and selling actions by order of a third party, while the dealer can do it on his own behalf.
When a person wants to participate in the financial markets by buying and selling those products that they consider interesting, they cannot do so directly. In order to do this on your own behalf, you need to be an authorized agent.
For this reason, most investors in the financial markets go to a broker or dealer to give their investment orders and have them execute them. In order for you to fully understand the difference between both concepts, it is important that you know the definition of each of them.
A broker is a company or person authorized to operate in the financial markets on behalf of third parties. That is, it has the ability to buy and sell financial products directly on the market.
Simplifying, imagine that due to state regulations only a few authorized companies can buy computers from producers, then these companies would be different brokers. Subsequently, those computers would be put up for sale to the public through them.
It should be noted that there are many types of broker depending on the market in which they operate. In this article we are talking about financial market brokers.
In the case of the dealer, it is a figure very similar to that of the broker. The dealer is also authorized to trade financial assets on its own behalf, as if it were a private investor.
In order to be an authorized agent in the financial markets, regardless of being a dealer or a broker, it is necessary to pass certain tests and meet certain requirements.
Difference between broker and dealer
Although both brokers and dealers are financial intermediaries, there is a difference between them. What differentiates a broker and a dealer is that the broker carries out the trading of financial assets by order and on behalf of a third party. However, dealers can make the purchase and sale on behalf of a third party, but also on their own behalf.
In addition to this, the dealer can carry out a negotiation with his clients of assets that he owns and that is not on the market.
For example, let’s imagine that we are private investors and we want to participate directly in the trading of financial assets. In this case, it will be necessary to obtain a dealer license. However, if we want to be financial intermediaries and charge investors a commission for each purchase and sale, the broker license will suffice.