Can anyone please help me distinguish “principal trade” vs. “agency trade”? I know that “principal trade” involves a discount of a spread, but what does that really mean? What is a real-life example for it?
Principal trade is when i sell something from my own inventory to you for a profit (discount/spread).
Agency trade is when i broker a sale (i.e. buy from somone else and sell to you and take a commission for doing so).
Car dealers engage in principal trades.
Real estate agents engage in agency trades.
Logged into to say thanks for the analogy, it makes things quite clear, more so than many other posts as well as schweser/CFAI themselves.