Investor's wiki



What Is a Broker-Dealer?

A broker-dealer (B-D) is a person or firm in the business of buying and selling securities for its own account or for its customers. The term broker-dealer is utilized in U.S. securities regulation speech to depict stock brokerages on the grounds that the greater part of them act as the two agents and principals.

A brokerage acts as a broker (or agent) when it executes orders for the benefit of its clients, though it acts as a dealer, or principal when it trades for its own account.

Grasping a Broker-Dealer

Broker-dealers satisfy several important capabilities in the financial industry. These incorporate giving investment exhortation to customers, providing liquidity through market-production activities, facilitating trading activities, distributing investment research, and raising capital for companies. Broker-dealers range in size from small independent stores to large auxiliaries of goliath commercial and investment banks.

There are two types of broker-dealers:

  1. A wirehouse, or a firm that sells its own products to customers; and
  2. An independent broker-dealer, or a firm that sells products from outside sources.

There are north of 3,975 broker-dealers to look over, as indicated by the Financial Industry Regulatory Authority (FINRA). The absolute largest broker-dealers incorporate Fidelity Investments, Charles Schwab, and Edward Jones.

How a Broker-Dealer Works

By definition, broker-dealers are buyers and sellers of securities, and they are likewise wholesalers of other investment products. As the name suggests, they perform a dual job in carrying out their obligations. As dealers, they act in the interest of the brokerage firm, starting transactions for the firm's own account. As brokers, they handle transactions, buying and selling securities for their clients.

In their dual jobs, they perform two or three fundamental capabilities; they work with the free flow of securities on the open market, and they buy or sell securities in their own accounts to guarantee there is a market in those securities for their clients. In such manner, broker-dealers are essential, and they are likewise very much redressed, earning a fee on one or the other or the two sides of a securities transaction.

Special Considerations

Broker-dealers that are tied straightforwardly to investment banking operations likewise participate in the underwriting of securities offerings. At the point when a broker-dealer acts as an agent of the responsible company, either as a principal underwriter of the stock or bond offering, or as a member of the underwriting syndicate, they go into a contractual arrangement, acting on a "firm responsibility" with the issuer that commits them to disseminate a certain amount of the securities offered to the public in exchange for an underwriting fee.

They may likewise obtain a piece of the securities offering for their own accounts and might be required to do so on the off chance that they can't sell the securities in general.

When the underwriting system is completed and the securities are issued, the broker-dealers then, at that point, become wholesalers, and their clients are ordinarily the target of their distribution efforts. In that work, the financial advisors of the firms then act as brokers to request their clients and suggest the purchase of the security for their accounts. In such manner, the broker-dealers are facilitating the interests of the issuer, themselves (in the assortment of a distribution fee), and their clients, despite the fact that their main contractual obligation is to the issuer.


  • There are huge number of broker-dealers containing two broad categories: a wirehouse, which sells its own products, or an independent broker-dealer, which sells products from outside sources
  • A broker-dealer is a financial entity that is locked in with trading securities for the benefit of clients, yet which may likewise trade for itself.
  • A broker-dealer is acting as a broker or agent when it executes orders in the interest of its clients, and as a dealer or principal when it trades for its own account.