Dealer's spread

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Dealer's spread

Dealer's Spread

The amount a dealer earns by buying a security and then selling it to an investor. The dealer's spread is the difference between the dealer's purchase price and his/her sale price. The dealer's spread is how dealers (other than broker-dealers) make most of their profits.
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Under the quoting convention, stocks with a dealer spread of 3/4 point or greater are quoted in even-eighths (quarters).
Q: And again, is that, in your professional opinion, because those market makers had three-quarter point dealer spreads and did not want to enter what were termed "unprofessional markets"?
In contrast to previous research, they find that inside dealer spreads narrow throughout the trading day, especially near the close.
Hamilton (1991) confirms the importance of distinguishing between the two spread types and shows that the determinants of the bid-ask spread may differ for market spreads versus dealer spreads.
Furthermore, Hamilton |21~ shows that market spreads and modal dealer spreads have similar cross-sectional properties.