Question

How can brokers and dealers make money? Which activity is riskier? Why?

Answer 1

Brokers charge commission on transaction as a % of transaction value for facilitating the transaction.

Commission is charged generally to both buyers and sellers.

Brokers don't take possession of asset.

They just facilitate the transaction.

However, dealers trade in asset. They buy the asset and then sell it by adding their margin.

Dealers are generally know as market makers since they have to maintain stock of assets.

Dealer's business is riskier than the brokers. Since dealers take possession of asset. They have the market risk (Price risk) as they have to maintain stock of assets.

That is price of assets in possession of dealer may fall in market.