Series 52: 4.1.2. A Dealer Market

4.1.2.  A Dealer Market

The secondary market for municipal bonds is a dealer market, meaning that most purchases and sales come out of a dealer’s own inventory. Dealers will quote bid and ask prices and take a mark-up on buy orders and a mark-down on sell orders. A dealer makes money on the difference between bid and ask prices, so he wants to buy low and sell high. A dealer may also put out a list of bonds that they are seeking bids from other dealers on. This is called a bid list.

If the dealer does not own the bonds, it will purchase the security from another dealer.

When a broker is employed to make a trade, the broker will gen