SIE practice questioneasyAgent vs. Principal
When a broker-dealer executes a trade on behalf of a customer and charges a commission, it is acting in what capacity?
- AAs a principal (dealer)
- BAs an agent (broker)✓ Correct answer
- CAs an underwriter
- DAs a market maker
Explanation
Why B — As an agent (broker)
When a firm acts as an agent (broker), it executes trades on behalf of customers and charges a commission. When acting as a principal (dealer), the firm trades from its own inventory and charges a markup or markdown instead of a commission. This agent vs. principal distinction is fundamental to the SIE exam. A firm cannot act as both agent and principal on the same transaction.
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