I have difficulties understanding the difference between a broker a dealer and a trader. broker trades on behalf of the trader. but what is the difference between a dealer and a trader? moreover there is a low-cost-whatever-the-liquidity trading strategy: The TRADER places a limit order outside the current bid-ask quotes in order to minimize trading costs. For example a trader may place a LIMIT BUY ORDER at a price below the current market bid. the sstrengt of this strategy is that commissions, spreads, and market impact costs tend to be low… i dont’t understand this - if somebody (here the trader) wants to buy securites - doesn’t he have to place an order the ask rate. I think my general confusion is from which perspective to we see this? if i want to buy securites, i look at the ask price - the dealer quotes the bid ( the price at which he buyssecurities) and the ask(price at which he sells securites). so if i want to place a limit buy order. do i see this from perspective of investor or trader??? thanks.
A broker puts the two counterparties together into a trade i.e. finds each party for the other , usually for a fixed commission . The dealer waits for the two parties to come to him and collects a bid-ask spread from both together . i.e. he acts as counterparty to both parties. No commission is charged by dealer because he is paid the spread. To get to a dealer too , you might have to pay commission to a broker.
can somebody please specify some more? what is the difference between a trader and a dealer? and lets say i want to sell securites - then i look at the bid price. above there was an example from a trader placing a buy order below the bid. but shouldnt he look at the ask??
yellayella Wrote: ------------------------------------------------------- > can somebody please specify some more? > what is the difference between a trader and a > dealer? > and lets say i want to sell securites - then i > look at the bid price. above there was an example > from a trader placing a buy order below the bid. > but shouldnt he look at the ask?? janakisri said it best. Trader is the one on the other side of the transaction. Broker is the intermediary.