A financial market mechanism wherein multiple dealers post prices at which they will buy or sell a specific security of instrument. Bonds and foreign exchange trade primarily in dealer markets, while stock trading on the Nasdaq is a prime example of an equity dealer market.

Financial Markets and the Corporation

A market maker in a dealer market stakes its own capital to provide liquidity to investors. The primary mode of risk control for the market maker is therefore the use of the bid-ask spread , which represents a tangible cost to investors.

For example, if Dealer A has ample inventory of WiseWidget Co. Rational investors looking to buy WiseWidget Co.

NASDAQ vs NYSE - Difference and Comparison | Diffen

Conversely, investors looking to sell WiseWidget Co. A dealer market differs from an auction market primarily in this multiple market maker aspect. In an auction market, a single specialist in a centralized location think of the trading floor on the New York Stock Exchange , for instance facilitates trading and liquidity by matching buyers and sellers for a specific security.

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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Dealer Market

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