Summary
The article discusses the traditional distinction between investors and dealers in the financial market. Investors make directional trades by betting on whether a stock will go up or down, while dealers are large institutions that buy and sell securities to provide liquidity for traders. The old definition of a broker included companies engaged in buying and selling securities as a regular business, specifically referring to market making services.
Key Points
1) Historically, investors and dealers have played distinct roles in the financial market. Investors make directional trades, speculating on whether a stock will increase or decrease in value, while dealers, often large institutions, provide liquidity by buying both sides of the market.
2) The traditional definition of a broker encompassed any company involved in the regular business of buying and selling securities. This definition included market makers, who facilitate trading by buying and selling securities to provide liquidity for traders.
3) The distinction between investors and dealers is rooted in the different functions they serve in the market. While investors take positions based on their predictions of market movements, dealers focus on providing liquidity and ensuring smooth trading by buying and selling securities on both sides of the market.