Riskless Principal - how does it work?

External question — Personal Finance Stack Exchange Author: learningmathematics Original post: https://money.stackexchange.com/questions/139708 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I've read the Investopedia article on Riskless Principal and my understanding is that a broker/dealer gets an order from a client of buy or sell a security at say 10. Then at the same time the broker executes an identical order in the marketplace for their own account. Now, I know brokers make money from the spread. But I don't see where the spread comes into it. If they are buying the same security for themselves in the market won't they also be buying it for 10 and so there isn't any spread. Or do they add a markup price or something to synthetically create a spread? The Investopedia article says: It is where a broker, who has received a customer order, immediately executes an identical order in the marketplace for their account, taking on the role of principal, in order to fill that customer order. Does taking on the role of principal just mean they take on the risk themselves when they buy the security for themselves?

External answer — Personal Finance Stack Exchange Author: Bob Baerker Original post: https://money.stackexchange.com/a/139712 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. The Investopdia article doesn't make a lot of sense to me. This one does : Riskless principal transaction means a transaction in which, after having received an order to buy from a customer, the bank purchased the security from another person to offset a contemporaneous sale to such customer or, after having received an order to sell from a customer, the bank sold the security to another person to offset a contemporaneous purchase from such customer.