Difference between broker and dealer

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Dealing in share market and securities has become common place now. Many people make a living out of dealing in the share market. When the discussion is on about share market and trading in securities, certain terms such as broker, dealer etc frequently crop up. Who are these persons and how does their role differ from each other is the main question.

Both the term “Broker” as well as “Dealer” are terms that one usually associates with trading in shares and securities. Both have vastly different functions to perform. We shall now look at the basic differences between a broker and a dealer.

Definition:

A broker is essentially a person who trades in shares and securities on behalf of his clients.

A dealer is a person who does similar activities but on his own behalf.

Decision making:

A broker acts on behalf of his clients. Hence he is not empowered to take his own decisions. He has to abide by his client’s instructions. He may give his advice but the last word always rests with the client and the broker has to abide by it in all respects.

A dealer acts on his own behalf. Hence he can take his own decisions. He has the freedom to choose which security to buy and which to sell and when. Any profit or loss he makes is entirely to his credit.

Experience:

A broker only deals on behalf of his clients. Hence this job does not require any special knowledge and experience. He just abides by the instructions of his client. He only acts as a facilitator. He is not responsible for the decisions taken by his client.

The dealer has much more responsibilities and hence has to have more experience. He has to have adequate knowledge about the functioning of the stock market. It is seen that many dealers had been brokers earlier in their lives. After gaining a certain amount of experience they have graduated into dealers,

Commission and earnings:

A broker is paid his commission on every deal which is usually a percentage of the actual transaction amount. As he is only a sort of a middleman between the two transacting parties he does not need to have any assets. He gets a commission on every deal. It does not matter whether the deal has a positive or negative impact on his clients. His commission is ensured as a percentage share in the trading amount.

A dealer does not get any commission as he does the deal on his own behalf. His earnings are the amount of profit he makes in the deal. As he deals in the transfer of assets, he must have his own assets which he can download at a later stage if required.

Guidelines as per law:

The broker has to abide by the guideline laid down by the controlling authority.

The dealer too has to abide by the laid down rules but he has certain additional responsibilities too.

Accessibility:

Whenever a person wishes to deal in the stock market the first person he contacts is the broker. The broker is the person who deals for the client and he is also sometimes referred to as the agent.

A dealer need not be accessible to the public. However any person can directly deal his shares with the dealer without going to the broker provided the dealer is interested in either buying or selling the shares as the case may be.

Thus we have seen that even though brokers and dealers do similar kind of activities there are differences in their approach. Nowadays there is a new nomenclature doing the rounds and this is the concept of a broker-dealer. He is a person who combines both the activities of a broker as well as a dealer.

 

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