Brokered Market

Updated on March 26, 2024
Article byAswathi Jayachandran
Edited byAswathi Jayachandran
Reviewed byDheeraj Vaidya, CFA, FRM

Brokered Market Meaning 

A Brokered Market means a financial market where brokers or intermediaries help clients purchase and sell securities or other financial instruments. In exchange for their services, these brokers match buyers and sellers, work out prices, and complete trades; they are paid commissions or fees.

Brokered Market

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Brokered Market (wallstreetmojo.com)

This type of market is essential because it plays the role of an intermediary between buying and selling parties of trade who might not otherwise be able to communicate directly. The trading activity enhances market efficiency and transparency through the provision of a platform. It provides access to a greater variety of investment options and thereby enhances economic growth.

Key Takeaways

  • A brokered market is a financial market where brokers or intermediaries facilitate the buying and selling of securities or financial instruments on behalf of clients. They offer a greater variety of investment options, contributing to economic growth and the diversification of portfolios.
  • Brokers play a crucial role in matching buyers and sellers, negotiating prices, executing trades, and earning commissions or fees for their services.
  • Brokers improve market liquidity by connecting buyers and sellers, reducing transaction costs, and leveraging their market knowledge and expertise.
  • It facilitates access to capital for businesses, protects investors, maintains market stability, and creates job opportunities.

Brokered Market Explained 

A brokered market is one in which buyers and sellers are brought together via an intermediary. Inventory is kept up to date for sale to third parties without using its funding. The broker makes money by charging a broker fee or from the difference in price between buyers and sellers. There are more buyers and sellers in these marketplaces, which enhances total liquidity.

They guarantee a steady stream of buyers and sellers, cutting down on transaction expenses and improving market liquidity. Due to their extensive understanding of the market and its players, brokers are able to connect buyers and sellers in an efficient manner, which speeds up transactions and decreases information asymmetries. 

Additionally, they give investors different investment options, such as foreign currencies, equities, bonds, and commodities. Brokers provide direction and support to investors, enabling both individuals and institutions the same opportunity to diversify their portfolios while navigating these markets. 

Brokers negotiate prices based on supply and demand dynamics, which improves price discovery. This market also promotes transparency by giving investors access to real-time market data so they can make well-informed decisions. All of them contribute to increased market liquidity.

Additionally, it provides businesses with access to capital, protects investors, maintains market stability, and creates job opportunities through brokers, traders, analysts, and support staff. It also contributes to economic growth by facilitating investment activities and ensuring orderly trading.

Examples 

Let us look at a few examples to better understand the concept:

Example #1

Suppose Daisy, a broker, offers her clients services that allow her to profit from the brokered market. She helps investors purchase and sell stocks in accordance with their investing aims and tastes. Daisy makes effective use of her understanding of the market to assess trends, haggle over prices, and carry out trades. She gives her clients access to a variety of investment alternatives, improves market liquidity, and assists them in reaching their financial goals by making use of this market. Thus, Daisy acts as an intermediary in this market that connects buyers and sellers.

Example #2

One example of a brokered market is the stock exchange. Brokers serve as middlemen between buyers and sellers of stocks on the stock market. They help to streamline the trading process by matching buyer and seller orders, settling pricing disputes, and carrying out deals on behalf of their clients. The New York Stock Exchange (NYSE) in short, is an American stock exchange and is one such example. 

NYSE is a significant, well-known stock exchange in the world. The market functions as a brokered one, with brokers serving as intermediaries between investors and enabling the trading of equities that are listed on the exchange.

Brokered Market vs Dealer Market

Different types of intermediaries are used to categorize markets globally, and this has a significant impact on trading efficiency, liquidity, and transaction costs. Thus, the differences between Brokered Market and Dealer Market are given below:

ParametersBrokered MarketDealer Market  
DefinitionsA financial market where brokers serve as intermediaries, linking buyers and sellers.Electronic trading markets where dealers utilize their accounts without involving third parties.
Trading MechanismBrokers match buyers and sellers, negotiate prices, and execute trades on their behalf.Dealers quote, bid, and offer prices to trade specific financial instruments.
Market StructureAn order-driven market where trades occur when brokers match orders from buyers and sellers.A quote-driven market where dealers provide bid and ask prices and buying and selling parties can accept those prices.
IntermediariesBrokers act as intermediaries between buyers and sellers, earning commissions or fees for their services.Dealers directly engage in trading with buyers and sellers, making profits from the bid-ask spread.
TransparencyBrokers promote transparency by disclosing prices negotiated between buyers and sellers.Transparency may vary as dealers may not disclose their buying or selling prices to the market.

Frequently Asked Questions (FAQs)

1. What does a modern brokered market look like?

A modern brokered market is characterized by the widespread utilization of technology and online platforms, enabling brokers to connect buyers and sellers electronically. It provides features such as real-time trading, access to a diverse array of financial instruments, and sophisticated trading tools, all aimed at improving efficiency and convenience.

2. What is the difference between a brokered market and an auction market?

The primary distinction between a brokered and an auction market lies in their trading mechanisms. In a brokered market, brokers act as intermediaries, matching buyers and sellers, negotiating prices, and executing trades. Conversely, in an auction market, buyers and sellers directly submit orders, and trades occur when their bids and offers align.

3. How big is the online brokered market?

The scale of the online market can significantly vary based on factors like geographical location and the specific financial instruments involved. Nonetheless, the online brokered market has experienced substantial growth due to technical advancements and the rising popularity of online trading platforms among individual investors.

This article has been a guide to Brokered Market and its meaning. Here, we explain the concept along with its comparison with dealer market and examples. You may also find some useful articles here –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *