What is a broker-dealer?


In simplest terms, a broker-dealer is a one-stop shop for financial investments.  A broker-dealer can and does sell stocks to clients like a broker would as well as purchasing stocks on its own behalf like a dealer, or prop trader, would.


Broker-dealers are quite common within the US financial system (over 3500), ranging from small securities shops with one or two people to large ones that manage trillions of dollars in assets.  In regards to the broker side of the business, there are two kinds:  Those that are known as wirehouses and those that are independent broker-dealers.  Wirehouses sell their own products to their clients whereas independent broker-dealers sell products that originate from external providers.


As mentioned above, broker-dealers are a substantial part of the modern financial marketplace.  Since they are a key gateway for many parties to financial markets, they are routinely compensated by at least one side of a transaction, if not both, very similar to real estate agents.