Principal vs. Agency Trades
Dealer trading from inventory (markup) versus broker executing for a client (commission).
What is Principal vs. Agency Trades?
Acting as agent (broker), the firm finds the other side of the trade and charges a commission. Acting as principal (dealer), it buys from or sells to the client out of its own inventory and earns a markup or markdown. A firm cannot charge both on the same trade, and the capacity must be disclosed on the confirmation.
Principal vs. Agency Trades: a worked example
A firm sells a client a bond from inventory at $1,020 that it values at $1,000 - a $20 markup, as principal.
More terms in Retirement Plans, Accounts & Trading
IRA Rollovers vs. Transfers
60-day rollovers are limited to one a year; direct transfers are unlimited.
10% Early Withdrawal Penalty & Exceptions
Distributions before 59 1/2 cost 10% extra, unless an exception applies.
Solo 401(k)
A 401(k) for a self-employed owner with no employees other than a spouse.
Defined Benefit Plan
A pension promising a specific benefit; the employer bears the investment risk.
Defined Contribution Plan
An individual account plan whose payout depends on contributions and returns.
403(b) Plan
A salary-deferral plan for public schools and 501(c)(3) nonprofits.
457 Plan
Deferred compensation for state and local government employees.
SIMPLE IRA
A low-cost plan for employers with 100 or fewer employees.
All Retirement Plans, Accounts & Trading terms · Full glossary