Dealers are those who purchase and sell assets or securities for their accounts. They can be individuals or firms, who make a transaction through a broker or not.
Different from brokers who act as the agent for their clients, these people trade for themselves. These people are one of the important figures within the market. They create the markets in securities and underwrite securities, as well as, providing investment services for investors.
In other words, according to Investopedia, dealers are market makers who give the bid and ask quotes in the over the counter market. These people also give help to create a liquid market and boost long-term growth.
The Detail Definition
In the markets of securities, dealers are the people or firms who are always ready to purchase (at their bid price) and sell (at their ask price) security for their account. These people gain profit from the spread of the bid and ask price. At the same time, they also increase the liquidity of the market.
These people are different from traders. Both traders and dealers buy and sell securities for their own account, but dealers do it as part of their regular business, while trader doesn’t do that for a business.
Recently, there are factors that challenge the profitability of dealers. Those factors range from the newest technology required to keep up with the changing markets, heightened regulatory environment to the industry consolidation. Those factors increase compliance costs.
Dealers vs. Brokers
These two people are closely associated with securities markets. They have similar functions, yet they also have several differences.
One, brokers do not trade for their own portfolio, they just facilitate the transaction, while dealers do it for their own portfolio. However, some dealers also act as brokers, these people are known as broker-dealers.
These two people also have different ways to charge their services. A dealer usually charges a markup whenever they sell his or her own inventory. On the other hand, a broker usually charges a commission from the clients for the trades they execute on behalf of the clients.