What Is the Primary Difference between an LP and a "Broker" in Derivatives Trading? ⎊ Path

What Is the Primary Difference between an LP and a “Broker” in Derivatives Trading?

A Liquidity Provider (LP) acts as a principal, taking on the risk of the trade by becoming the direct counterparty to the liquidity seeker. They profit from the bid-ask spread and their ability to manage the resulting risk.

A "broker," on the other hand, acts as an agent, facilitating the trade between two parties (or between a client and an LP) without taking on the risk themselves. A broker's primary revenue is typically a commission or fee.

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

What Role Does a ‘Principal’ versus ‘Agent’ Play in OTC Crypto Trading?

How Does the Bid-Ask Spread Reflect the Risk Taken by a Principal Desk?

What Is “Taking the Spread” versus “Making the Spread” in Order Execution?

What Is the Function of a “Transfer Agent” in Traditional Finance versus an STO?

How Do These Fee Structures Resemble Commission Models in Traditional Finance?

What Is the Difference between a Principal and an Agency OTC Trade?

What Is the Benefit of Using an Agent-Based Model for Large, Illiquid Crypto Assets?