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What Is the Difference between a Principal and an Agency Market Maker?

A principal market maker trades on their own account, using their capital to buy and sell, capturing the bid-offer spread as profit. An agency market maker (or broker) executes trades on behalf of clients, earning a commission or fee, and does not take the spread themselves.

The principal model directly influences the spread, while the agency model focuses on execution quality.

What Are the Regulatory Implications of the Distinction between Agency and Principal Trading?
How Does the Effective Spread Differ from the Quoted Spread?
What Is the Effective Spread and How Does It Differ from the Quoted Spread in a Thin Market?
Why Might an Institutional Client Prefer the Agency Model for an Extremely Large Trade?