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A market maker is obligated to make markets in specific securities, meaning they both bid (to buy) and offer (to sell) the stock at the same time. They trade for their own account and generally try to make money from the spread (the difference between the bid and offer). For instance, the market maker for Alcoas stock (symbol AA) might bid 10.61 and offer 10.62. He is hoping someone buys stock from him at 10.62 and someone else sells stock to him at 10.61. He makes the .01 difference between the prices.

A broker simply brokers a deal between two parties. The broker never buys or sells a stock himself, he just sits in the middle, either by sending your order to a market where it can be executed, or finding the other party to the trade directly. These used to be the guys at Merrill Lynch and Schwab, now the more familiar brokers now are ScottTrade, Ameritrade, etc.

A dealer will usually be on the other side of the trade. Like a used car dealer, you will be buying or selling with the dealer himself as the counterparty. This is usually done in less liquid securities like municipal bonds or penny stocks.

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