what is a dealer 
dealers are people or firms who buy and sell securities for their own account whether through a broker or otherwise a dealer acts as a principal in trading for its own account as opposed to a broker who acts as an agent who executes orders on behalf of its clients dealers are important figures in the market they make markets in securities underwrite securities and provide investment services to investors that means dealers are the market makers who provide the bid and ask quotes you see when you look up the price of a security in the over the counter market they also help create liquidity in the markets and boost long term growth while dealers are in a separate registration category in the u s the term is used in canada as the shortened version of investment dealer the equivalent of a broker dealer in the u s understanding dealersa dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account at its bid price or sell from its own account at its ask price a dealer seeks to profit from the spread between the bid and ask prices while also adding liquidity to the market it neither does business on behalf of a client nor facilitates transactions between parties entities that arrange trades between security buyers and sellers but do not purchase and hold securities in their own account are not classified as dealers a dealer is different from a trader while a dealer buys and sells securities as part of its regular business a trader buys and sells securities for their own account not on a business basis in recent years the profitability of dealers has been challenged by a number of factors including increased technology requirements to keep up with rapidly changing markets industry consolidation and the heightened regulatory environment which has increased compliance costs regulating dealersdealers are regulated by the securities and exchange commission sec as part of the regulation all dealers and brokers must register with the sec and must be members of the financial industry regulatory authority finra 1anyone engaged in the following activities generally needs to register as a dealer under sec guidelines dealers are required to perform certain duties when they deal with clients these duties include prompt order execution disclosure of material information and conflicts of interest to investors and charging reasonable prices in the prevailing market dealers are not allowed to begin conducting business until the sec has granted registration they must also join a self regulatory organization sro become a member of the securities investor protection corporation sipc and comply with all state requirements 3dealers vs brokersthese are two roles that are generally associated with the buying and selling of securities although they may function in a similar capacity they do have distinctions between them contrary to a dealer a broker does not trade for its portfolio but instead facilitates transactions by bringing buyers and sellers together in practice most dealers also act as brokers and are known as broker dealers broker dealers range in size from small independent houses to subsidiaries of some of the largest banks firms operating as broker dealers perform both services depending on the market conditions and on the size type and security involved in a particular transaction another key difference between the two is how they charge for their services a dealer will charge a markup when selling from their own inventory because the dealer is principal in the account while a broker charges clients a commission for executing trades on their behalf dealers are also different from registered investment advisors rias who are required to put their clients interests above their own this standard is referred to as the fiduciary standard dealer marketsthe environment in which multiple dealers come together to buy and sell securities for their own accounts is called a dealer market in this market dealers can deal with each other and use their own funds to close the transaction as opposed to a broker s market wherein they work as agents of buyers and sellers brokers are not permitted to trade in a dealer market dealers provide all the terms of the transaction including price other dealers in the marketwhile the term dealer is used predominantly in the securities market there are others who use this distinction dealers can also refer to a business or person who trades in or executes the purchase or sale of a specific product or service for example someone who sells automobiles is called a car dealer while a person who deals in the sale of antiquities is called an antique dealer dealer faqsafter buying securities such as stock and bonds dealers sell those securities to other investors at a price higher than the buying price the difference between their buying price bid price and their selling price ask price is known as the dealer s spread the dealer s spread equals the profit that the dealer makes on the transactions 