Dealer

What Is a Dealer in Trading?

A dealer (sometimes called a forex dealer, FX dealer, or foreign exchange dealer) is a person or firm that trades currencies for its own account, acting as the direct principal in a transaction. This means the dealer is the one buying or selling, not just arranging a match between buyers and sellers.

• Essentially, the dealer meaning is someone who takes the other side of your trade.
• In contrast, a dealer acts as an agent, placing trades on your behalf and usually charging a commission.

Who Is a Dealer?

• A forex dealer might be a large bank or specialized financial firm that facilitates currency exchange.
• They typically make money through the spread, which is the difference between the price they’re willing to buy and the price they’re willing to sell.
• Retail foreign exchange dealers (RFEDs) serve everyday traders like you. They act as counterparties in over-the-counter (OTC) trades, completing orders directly rather than matching traders with each other.

Dealer vs. Broker: What’s the Difference?

• A dealer trades against you, risking their own capital and taking the opposite side of a trade.
• A broker acts as a facilitator, matching your order with someone else's and earning commission. They don’t trade against you.

Example of Dealer

Suppose you want to buy 1 lot of EURUSD:

• The dealer quotes you 1.10501 and sells it to you directly from their own inventory. You are effectively trading against them.

Now suppose you want to sell 1 lot of EURUSD:

• The dealer buys it from you at 1.10480 using their own capital.

The small difference between the buy and sell prices (the spread) is where the dealer makes their profit, while also ensuring there’s always someone available to take the other side of your trade.