Principal Orders

  

Categories: Trading

See: Principal.

A pizza delivery person drives around with pizzas in his car all day. Most of those pizzas are for other people. But, every so often, the pizza delivery person buys a pizza for himself and drives it home.

Take that concept to Wall Street, and you have the definition of principal orders.

Brokers transact business for their clients. You call your broker, looking to buy 100 shares of AAPL. They take care of the rest...all the paperwork, the execution of the order, the custody of the stock, etc. Meanwhile, brokers also sometimes conduct business on their own accounts. So they aren't buying stock for their clients; they're buying it for themselves...making a bet on their own behalf, and trying to make money off the market.

These orders are known as principal orders. The brokers represent the principal actors for the transaction, as opposed to most situations, when they act as an agent for someone else. There are regulations regarding how the principal orders take place, to protect against activities like insider trading.

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