Chapter 5. Participants of the stock exchange: dealers and brokers

So, in the previous chapters we learned what stock exchanges are and got acquainted with the leading representatives of the world’s stock exchanges. Now we will consider the main participants of the stock exchange. You already know that only members of a stock exchange can operate on it. You also know that in order to participate in the exchange they need to meet the requirements set by the exchange and the legislation. Having a special license is one of these requirements. Licenses are issued by the Federal Financial Markets Service (FFMS). It licenses operations on stock exchanges. Dealers and brokers are the only participants who can trade on the stock exchange. Let’s see how they differ and what are their functions?

Dealers are professional participants in the stock exchange, which include banks and investment companies that deal in securities. They conduct business on their own behalf, for their own money and do not engage in intermediary operations. They make transactions with clients, brokers and among themselves. They make their profits on the difference between the seller’s and buyer’s rates, as well as on changes in the rates of securities and currencies.

Brokers are professional participants of the stock exchange, who have the right to make transactions with securities on behalf of the client and at his expense. They are intermediaries who carry out transactions between sellers and buyers of currencies, securities and other financial assets. Do you know what they earn on? It’s simple! Their income is a commission for intermediary activity, which they receive when making transactions with securities. The amount that the broker will receive as a commission depends on the volume of the transaction. At the moment, the main volume of intermediary operations is performed by large brokerage companies that have a large network of branches and connections with banking institutions.

The broker’s work is simple: the client gives him an order to sell or buy securities, and the broker places this order on the market, where a counter order is sought, after which both are executed. It is the broker’s obligation to execute the clients’ orders faithfully and accurately.

We have found out that the participants of the stock exchange are dealers and brokers. Now let us emphasize the main difference between a dealer and a broker: a dealer conducts business on his own behalf and at his own expense, while a broker works on behalf of a client and is, in fact, an intermediary. A dealer independently carries out activities on the exchange and does not engage in intermediary activities – all the money invested in securities, metals and currencies belongs to him.