Agency Model

The agency model of trading involves a brokerage customer trading with another investor or brokerage. The broker must find a counterparty willing to buy or sell the security for the same price as their customer. The agency model is a popular brokerage method for executing a customer’s orders. Agency trading is more complicated than principal model trading, since these transactions involve the brokerage finding a counterparty, often at a different brokerage, to fulfill the other half of the client’s desired trade. As the number of participants in a trade increases, there are increased needs for bookkeeping, clearing, and settlement, to ensure the brokers client and the counterparty meet their respective obligations.