Dealer markets are where traders use their own resources to buy and sell commodities, while auction markets have a specialist who processes orders. Dealer markets, like NASDAQ, allow for quick interactions and research, but participants must comply with regulations.
Dealer markets are markets that differ from investment markets in general in that traders who focus on particular commodities conduct buying and selling activities using their own accounts rather than being represented by a third party. Stock brokers who make use of a broker’s market are often referred to as Market Makers. In this type of trading environment, buyers and sellers use their own resources to conduct business.
A dealer market is different from an auction market. With auction markets, there is usually a specialist who functions as the gatekeeper for incoming orders to buy and sell. Essentially, the specialist works from one location and matches buy and sell orders as they come in. His only function is to process orders. This means that an auction market specialist does not perform functions such as researching market trends or providing sales support to investors. A specialist operating in an auction market is also limited to making use of a company’s capital assets.
In contrast, a dealer marketplace allows traders or dealers to use their own resources to conduct business, research, and support their investor clients. Also, Market Makers are not constrained in the same way that an auction market specialist is. Several dealers in a dealer market situation may take a risk and invest their capital in a given stock.
One of the best examples of this type of market is the NASDAQ. Dealers can move quickly to process buy and sell orders and interact freely when it comes to research and other key functions. This is one of the main advantages of a dealer market; The ability to move quickly when buying and selling securities means a greater opportunity to earn a higher return or minimize loss on any investment.
A dealer market can focus on any type of commodity, including stocks and Treasury bonds. In general, distributors must meet strict requirements to participate in this type of market, including compliance with the rules governing their continued participation in the market. In the event that a Market Maker chooses to operate outside of the regulations associated with trading privileges, the dealer may be temporarily limited in the ability to trade, or may be banned entirely.
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