Dealer Market
Contents
Unlocking the Dynamics of Dealer Markets: A Comprehensive Guide
Discover the inner workings of dealer markets, a fundamental mechanism in financial markets, and grasp their significance in trading securities.
Deciphering the Essence of Dealer Markets
Unveiling the Concept:
A dealer market operates as a transparent financial mechanism where multiple dealers display prices at which they are willing to buy or sell specific securities, promoting liquidity and transparency in trading activities.
Fact 1: Dealer markets are prevalent in bond and foreign exchange markets, with the Nasdaq exemplifying an equity dealer market. (source)
Understanding the Mechanics of Dealer Markets
Market Maker Dynamics:
Market makers in dealer markets deploy their capital to provide liquidity, utilizing bid-ask spreads to manage risks and facilitate trading. Investors benefit from competitive pricing offered by multiple market makers.
Fact 2: Dealer markets remove the intermediary role of brokers, enhancing efficiency and reducing transaction costs for investors.
Contrasting Dealer Markets with Broker Markets
Distinguishing Characteristics:
Dealer markets stand apart from broker markets in their operational dynamics. While brokers act on behalf of clients, executing trades, dealers trade on their own accounts, exerting greater control over transactions.
Fact 3: In broker markets, commissions are earned for executing trades, whereas dealers, as principals, do not receive commissions. (source)