Principal Model
a.k.a. Principal trading, Dealing desk model
A way of operating where a dealer trades with clients using its own money and inventory, taking the other side of their trades.
In the principal model, the dealer or broker is not just passing your order along. It is the counterparty: when you buy, it sells to you from its own book. It earns from the spread and can also profit, or lose, from the trades it holds.
It is the opposite of the agency model, where the firm simply routes your order to the market for a fee. Neither is automatically bad, but in the principal model the firm's interests and yours can pull in different directions.
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