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What is the difference between a broker dealer and a hedge fund?

(Last Updated On: March 16, 2012)

What is the difference between a broker dealer and a hedge fund?

Simply ask Wikipedia, but the result is really correct. A broker-dealer either acts/trades on behalf of a customer (broker) or trades on his/the companies own account (dealer). A hedge fund is always a dealer acting on behalf of the fund. He is not a broker because the actual trader and the fund are located within the same legal entity i.e. the hedge fund. When a hedge fund uses a broker dealer he buys/sells against the broker if the trade is executed on an exchange or against another customer of the broker or he trades against the dealer, if the broker-dealer executes the trade against his own books.

 

If you were looking for a simple analogy, think of a Real Estate Agency and an Investor in Real Estate holdings. The Real Estate Agency is like the Broker Dealer — acting on behalf of a buyer or seller to determine price and “fill the trade”. The Real Estate Holdings firm is like a Hedge Fund, buying properties for captial gains or income and selling them when they can realize gains (or to stop loss) or when they wish to invest those funds in other holdings or because their investor clients require redemptions (cash).

What is the difference between a broker dealer and a hedge fund?

 

Simply ask Wikipedia, but the result is really correct. A broker-dealer either acts/trades on behalf of a customer (broker) or trades on his/the companies own account (dealer). A hedge fund is always a dealer acting on behalf of the fund. He is not a broker because the actual trader and the fund are located within the same legal entity i.e. the hedge fund. When a hedge fund uses a broker dealer he buys/sells against the broker if the trade is executed on an exchange or against another customer of the broker or he trades against the dealer, if the broker-dealer executes the

 

If you were looking for a simple analogy, think of a Real Estate Agency and an Investor in Real Estate holdings. The Real Estate Agency is like the Broker Dealer — acting on behalf of a buyer or seller to determine price and “fill the trade”. The Real Estate Holdings firm is like a Hedge Fund, buying properties for captial gains or income and selling them when they can realize gains (or to stop loss) or when they wish to invest those funds in other holdings or because their investor clients require redemptions (cash).

 

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