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What Is Dual Trading?

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  • Written By: G. Wiesen
  • Edited By: Shereen Skola
  • Last Modified Date: 04 September 2016
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Dual trading refers to a broker who buys or sells stocks or investments for a customer, acting as an agent, but then also buys or sells stocks for himself or herself in the same day. Opponents of dual trading argue that it has the potential for abuse and for illegal or unethical trading opportunities. Those in favor of it, however, indicate that personal trades by brokers are important to daily buying and selling.

As a financial term, dual trading usually refers to actions of those individuals involved with a stock exchange, or a similar market. The basic idea behind it comes down to a separation between the potential roles of a broker: which are an agent and a dealer. As an agent, a broker is expected to represent others and buy or sell stocks and other investments according to what is best for those he or she represents. Dealers, however, buy and sell stocks for themselves or for groups they are a part of, which means they have no obligation to others.

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Dual trading occurs when a broker acts as both an agent and a dealer within a single market session or work day. Opponents of this practice typically argue that such trading creates opportunities for abusive actions by brokers who may use information gained through agent sales to benefit themselves as dealers. There are laws regulating dual trading in many countries, and in the US it is illegal unless certain conditions are met by the broker. Certain markets may be more open to such trading, but opponents of the practice believe that it does not have any inherent benefits for clients of a broker or for the market in general.

Those who are in favor of dual trading, however, argue that it is an important aspect of various markets and that dealer trades are often essential. These proponents hold that trades by dealers are a major part of market activity in any given day. If brokers were restricted to only conducting agent or dealer trades each day, proponents claim, then market activity would be greatly reduced, harming the markets and the economy in general. They also argue that abuse of dual trading is more of a threat than a reality, and that most brokers are able to do what is best for themselves and their clients without a conflict of interests.

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