when a dealer acts a principal in the transaction he can mark up the bid price which creates a wider bid ask spread the difference between the market spread and the dealer s marked up spread is the profit 
in lieu of charging a flat fee brokers acting as principals can be compensated from the markup gross profits of securities held and later sold to customers special considerations for markupsthe dealer is only required to disclose the transaction fee which is typically a nominal cost in doing so the buyer isn t privy to the dealer s original transaction or the markup from the buyer s perspective the only cost for the bond purchase is the small transaction fee should bond buyers try to immediately sell the bonds on the open market they would have to make up the dealer s markup on the spread or incur a loss the lack of transparency places the burden on the bond buyers to determine whether they are receiving a fair deal dealers compete with each other by reducing the amount of their markups it is possible for bond buyers to compare the price the dealer paid for the bond with its actual price bond buyers can have access to bond transaction details through various sources such as investinginbonds com which reports all information related to bond transactions daily 