broker-dealer

finance

Written byDoug Ashburn

Fact-checked byThe Editors of Encyclopaedia Britannica

Routing orders, managing the flow, and facilitating the trade process.

A broker-dealer is typically a firm whose business is buying and selling stocks, bonds, and funds for itself and for others. Broker-dealers thus perform both the work of brokers, who buy and sell securities for the accounts of their clients, and dealers, who buy and sell securities for their own accounts. They are regulated by the U.S. Securities and Exchange Commission (SEC).

Broker-dealer types

Some broker-dealers are “full-service” firms that offer advisory services and can make any type of trade. Others are “discount” brokers, which may have lower fees (with most offering zero-commission trades for online orders) but offer fewer services. The SEC typically refers to stock brokerage firms as broker-dealers because they are usually able to serve the functions of both brokers and dealers.

Broker-dealers in the bond market

In the bond market, broker-dealers act as an intermediary between buyers and sellers of municipal and corporate bonds. They generally keep bond inventory on hand and sell bonds to interested buyers in exchange for a commission. They play an important role in these transactions because the bond market is less liquid than the stock market, meaning that bonds are harder to buy and sell quickly.

Learn more about the difference between a broker and an exchange.

This article was most recently revised and updated by Doug Ashburn