Principal Trading vs Agency Trading

There are two main types of trades known as Principal Trading and Agency Trading.

Principal Trading

Principal trading, often referred to as proprietary trading, is when financial institutions execute a customer's trade using their own inventory in various financial markets.

Principal trading allows brokers to profit from the bid-ask spread and market movements.

Agency Trading

Agency trading involves brokers acting as intermediaries between buyers and sellers in financial markets.

In this approach, brokers execute trades on behalf of their clients, with the primary goal of achieving the best possible execution for the client.

Brokers charge their clients commissions for executing the trades.