Dealers & Brokers in the Stock Market

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  • 0:00 Buying and Selling Stock
  • 0:41 Dealers
  • 1:32 Brokers
  • 2:28 Broker-Dealers
  • 3:09 Lesson Summary
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Lesson Transcript
Instructor: Ian Lord

Ian has an MBA and is a real estate investor, former health professions educator, and Air Force veteran.

The New York Stock Exchange serves as a marketplace for dealers and brokers to buy and sell stocks. In this lesson we will examine the distinction between dealers and brokers.

Buying and Selling Stock

Joe is interested in buying some shares of stock after seeing news headlines about the New York Stock Exchange. But how do individual people like Joe buy and sell shares of stock? Stock market transactions happen with the help of professional intermediaries who trade, or buy and sell shares, on behalf of their clients. Buying and selling stock requires a license, so a regular guy like Joe has to use these professionals, called dealers and brokers, to participate in the market. Take a look at who these people are, and explore the differences between their roles.


Joe cannot make purchases on the exchange or go to a company to buy stock by himself, but one way for Joe to purchase stock is to contact a dealer, a business that builds an inventory by purchasing shares from individuals when they wish to sell their stock. Then when a customer like Joe wants to buy a stock, the dealer sells it to that customer from its existing holdings. In the event of a sale, the dealer holds onto the stock until someone else wants to buy it.

The dealer functions independently from the stock exchanges. Sometimes these businesses are called market makers, because they create a new venue for stock trades outside of the established exchanges. A dealer that buys and sells stock makes a profit on stock purchases by marking up the share price to investors and marking down the price for sales.


However, it's more likely that Joe will make his purchases and sales with the services of a broker , a business that acts on behalf of a specific client order. When Joe wants to buy a stock, the broker executes the order by finding someone willing to sell that stock on one of the exchanges. This happens through an exchange such as the New York Stock Exchange. The broker charges a commission fee for making the trade.

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