Riskless Principal
A trade where a dealer buys from one party and instantly sells to another, so it never holds the risk itself.
In plain English
A trade where a dealer buys from one party and instantly sells to another, so it never holds the risk itself.
In a riskless principal trade, a dealer technically acts as a principal, buying and selling in its own name, but lines up both sides at once. A client wants to buy; the dealer simultaneously buys in the market and sells to the client, usually earning a small markup. Its own book is left with no position.
It sits between the principal model, where the dealer keeps the risk, and the agency model, where it just passes the order along for a fee.
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