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An Economic Analysis of Dual Trading

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  • Sanford J. Grossman

Abstract

Dual trading is said to occur when an entity sometimes trades as a broker for customers, and at other times trades for its own account. Dual trading is quite pervasive throughout the United States securities and futures markets as well as in financial and commodity markets throughout the world. The pervasiveness of dual trading is due to the fact that many of the skills and facilities required to be a good broker are also necessary to be a good trader. Dual trading increases the supply of both brokers and floor traders because a dual trader can earn income from two activities to cover the costs of training, an Exchange seat, and time spent on the floor. He has less idle time and facilities when he can switch from the activity in low demand to the activity in high demand.

Suggested Citation

  • Sanford J. Grossman, "undated". "An Economic Analysis of Dual Trading," Rodney L. White Center for Financial Research Working Papers 33-89, Wharton School Rodney L. White Center for Financial Research.
    • Handle: RePEc:fth:pennfi:33-89
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    Citations

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    Cited by:

    1. Sugato Chakravarty & Asani Sarkar, 1998. "An analysis of brokers' trading with applications to order flow internalization and off-exchange sales," Research Paper 9813, Federal Reserve Bank of New York.
    2. Peter Locke & Asani Sarkar & Lifan Wu, 1996. "Did the good guys lose?: heterogeneous traders and regulatory restrictions on dual trading," Research Paper 9611, Federal Reserve Bank of New York.
    3. Sugato Chakravarty & Asani Sarkar & Lifan Wu, 1997. "Estimating the adverse selection cost in markets with multiple informed traders," Research Paper 9713, Federal Reserve Bank of New York.
    4. Sugato Chakravarty & Asani Sarkar, 1997. "Traders' broker choice, market liquidity and market structure," Staff Reports 28, Federal Reserve Bank of New York.
    5. Sugato Chakravarty & Asani Sarkar & Lifan Wu, 1998. "Estimating the adverse selection and fixed costs of trading in markets with multiple informed traders," Research Paper 9814, Federal Reserve Bank of New York.
    6. Sugato Chakravarty & Asani Sarkar, 1997. "Can competition between brokers mitigate agency conflicts with their customers?," Staff Reports 25, Federal Reserve Bank of New York.
    7. Locke, Peter R. & Sarkar, Asani & Wu, Lifan, 1999. "Market Liquidity and Trader Welfare in Multiple Dealer Markets: Evidence from Dual Trading Restrictions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(1), pages 57-88, March.
    8. Romans Pancs, 2014. "Workup," Review of Economic Design, Springer;Society for Economic Design, vol. 18(1), pages 37-71, March.
    9. Hun Y. Park & Asani Sarkar & Lifan Wu, 1998. "Do Brokers Misallocate Customer Trades? Evidence From Futures Markets," Finance 9801002, University Library of Munich, Germany.
    10. Frantisek Kopriva, 2008. "Source of Information-Driven Trading on the Prague Stock Exchange," CERGE-EI Working Papers wp365, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    11. Albert J. Menkveld & Asani Sarkar & Michel Van der Wel, 2007. "Macro news, risk-free rates, and the intermediary: customer orders for thirty-year Treasury futures," Staff Reports 307, Federal Reserve Bank of New York.
    12. Chakravarty, Sugato & Li, Kai, 2003. "A Bayesian analysis of dual trader informativeness in futures markets," Journal of Empirical Finance, Elsevier, vol. 10(3), pages 355-371, May.

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