Chapter: 3 How Securities are Traded?

Section: 5 Brokers & Dealers

A stock exchange is a market that is constituted by a number of brokers while an over-the-counter market comprises a network of dealers. The difference between brokers and dealers is that a broker does not sell or purchase on its own account and does so on behalf of its client, the investor. However, a dealer buys or sells securities for own account and keeps an inventory of securities at any time. The broker earns a living by taking a commission for each trade that is executed while the dealer earns profit from the bid-ask spread.