Investments, tenth edition

  Dealer Markets   

When trading activity in a particular type of asset increases,    dealer 

markets   

 arise. Dealers specialize in various assets, purchase these assets for their own 

accounts, and later sell them for a profit from their inventory. The spreads between dealers’ 

buy (or “bid”) prices and sell (or “ask”) prices are a source of profit. Dealer markets save 

traders on search costs because market participants can easily look up the prices at which they 

can buy from or sell to dealers. A fair amount of market activity is required before dealing in a 

market is an attractive source of income. Most bonds trade in over-the-counter dealer markets.