Trading, Accounts & Prohibited ActsQuestion 215 of 398
A dealer quotes a stock at $20.00 bid and $20.10 ask. If the dealer buys from one customer and sells to another at these quotes, what is the dealer's gross profit per share?
a.$0.10, the spread between the bid and ask
b.$20.10, the full ask price
c.$0.00, because dealers do not profit from quotes
d.$40.10, the sum of the bid and ask
Explanation
The dealer buys at the $20.00 bid and sells at the $20.10 ask, earning the $0.10 spread per share as compensation for providing liquidity. The spread, not a separate commission, is how a principal dealer is typically paid.
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