CoachA firm trades as principal when it is itself the buyer or the seller: the position, and its risk, land on its own balance sheet. It trades as agent when it arranges a trade between its client and a third party: it never owns the position and is paid a commission.
Ejemplos
Example 1.16 (The same sale, twice)
A client wants to sell 500 000 shares trading around $50. As agent, the broker works the order in the market over the day for a commission of 1 cent a share: it earns $5 000 whatever price the client obtains, and the client bears the risk that the price falls during the day. As principal, the dealer buys the whole block now at $49.80: the client is done, and the dealer owns $24.9 million of stock that it must sell. If it sells at an average of $49.92 it makes $60 000; at $49.70 it loses $50 000. The 20-cent discount is the price of transferring the risk.