What is agency trading?

In agency trading, the broker is an intermediary between the exchanges and the clients. The broker does not take positions in the market but simply executes trades based on the client's instructions. The benefit of agency trading is that it is much less risky than principal trading, as the brokerage is not exposed to the same level of market risk.

What is principal trading & agency trading?

In the world of financial markets, two prominent approaches to executing trades are principal trading and agency trading. Principal trading involves brokerages using their own inventory of securities to complete customer trades, allowing them to profit from the bid-ask spread.

What is an agency trade order?

With an agency trade order, a broker trades for the benefit of a client rather than itself. The broker is compensated by a commission. In the case of a principal trade, a dealer will act as a broker as well, trading from their inventory they charge a spread as a fee.