SIE practice questionmediumPrincipal vs Agency Trades
When a broker-dealer executes a trade from its own inventory for a customer, the firm is acting in what capacity?
- APrincipal (dealer)✓ Correct answer
- BFiduciary
- CAgent
- DUnderwriter
Explanation
Why A — Principal (dealer)
When a firm trades from its own inventory, it acts as principal, also called a dealer. The firm charges a markup or markdown. When acting as an agent, the firm facilitates a trade between a buyer and seller without using its own inventory and charges a commission. A fiduciary standard and underwriting are different concepts.
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