What is the typical role of a dealer in a security market?

In the security markets, the primary role of a dealer is to act as a market participant who provides liquidity by engaging in the buying and selling of securities. Dealers maintain an inventory of securities and are ready to buy and sell them at any time, which ensures that there are always opportunities for investors to transact without significant delays. By doing so, dealers help facilitate smoother market operations and contribute to price stability.

Their role is crucial because, without dealers, investors might face challenges in finding someone willing to buy their securities or sell to them when needed, particularly in less liquid markets. Dealers earn profits through the spread, which is the difference between the prices at which they buy and sell securities, making them an essential component of market functionality.

While executing trades on behalf of investors, assessing risk profiles, and managing investment portfolios are important functions within the financial industry, these tasks are typically carried out by brokers, financial analysts, and portfolio managers, respectively, rather than by dealers specifically.