Dealer
A dealer buys EUR 100,000 from a client at 1.1000 and separately sells the same amount to another counterparty at 1.1001. The USD 10 price difference is gross, assuming both deals execute. Timing, charges and other inventory can change the dealer’s net outcome.
Principal and agent
A principal enters the contract for its own account; an agent arranges a trade on another party’s behalf. The same firm can perform different roles in different services. Determine the role from the agreement and transaction confirmation, not from a platform name or an “ECN” account label.
Inventory and external hedging
A dealer can retain an inventory, match offsetting customer flows or hedge with external counterparties. Those choices affect its market risk. A separate hedge does not automatically replace the legal relationship with its client, and internalisation does not establish that every trade is entirely unhedged.
Assess the client-facing service
Review price formation, executable quantity, markups, order handling and disclosure of conflicts. A dealer’s obligation to a client is distinct from the profitability of its hedge. A quoted spread is not guaranteed net income: unmatched exposure can lose value, and operational, credit and financing costs remain.
FAQ
Is every dealer a market maker?
No. Market making involves quoting trading interest; dealer describes acting as principal. Activities can overlap without being identical.
Does an external hedge mean the dealer is my agent?
No. The client contract can remain bilateral with the dealer even when the dealer enters an external hedge.
