Markup

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Markup

1. The additional price one pays when one buys a security from a broker-dealer. That is, when one buys a security, one pays the broker-dealer an extra percentage or a flat fee as commission. This markup forms the bulk of the broker-dealer's income.

2. See: Spread.

3. The extra amount a retailer charges a customer for a good over and above what it paid the wholesaler. For example, if one pays Wal-Mart $20 for a toaster, and Wal-Mart bought it from the manufacturer for $15, the markup is $5.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

markup

1. An upward revaluation of a security by a dealer because of a rise in the security's market price. For example, a dealer may decide that a markup on a security issue held in inventory is appropriate because of a rising stock market. Compare markdown.
2. See spread.
3. The difference between the price charged by a dealer to a retail customer and the prevailing price at which the same security is being offered by market makers. Compare markdown.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Markup.

When you buy securities from a broker-dealer or market maker, you pay a markup. The markup is either a percentage of the selling price or a flat fee, over and above the amount it cost the broker-dealer to purchase the security.

The amount of this markup, or spread, is the broker-dealer's profit and depends in part on the demand for that security or others like it.

For example, if investors are buying up certain types of bonds, a broker-dealer may increase the markup for bonds in that category.

You might say that the broker-dealer acquires the security at wholesale price and sells it to you at retail price. The difference is the markup.

If the markup doesn't appear on the confirmation statement, you can ask the broker-dealer about the markup amount. Or you can compare the prices that different broker-dealers quote for the same security or the price being quoted for the security on the Internet. The differences in price generally reflect the differences in markups.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.