Exchange, broker, dealer and custodian

In plain terms — An exchange organises trading; a broker receives or transmits an order; a dealer may trade for its own account; a market maker quotes prices; a custodian records and holds assets. A platform may combine several functions, but that does not make them the same function.

The screen used to buy or sell an instrument is only the visible access point. Different entities with distinct responsibilities may operate behind an order. Understanding their roles helps establish where the price is formed, who decides the routing, who is the counterparty and who holds the assets after settlement.

Functions that must be separated

Role	Main function	Question to ask
Exchange or trading venue	organises the interaction of trading interests under a rulebook	on which venue is the order executed?
Broker	receives, transmits or executes client orders	does it act as agent, principal or both?
Dealer	trades for its own account	is it the transaction's counterparty?
Market maker	quotes prices or states a willingness to buy and sell	which instruments and obligations does it cover?
Clearing house / CCP	determines positions and, when acting as a CCP, interposes itself between the parties	is the transaction centrally cleared?
CSD and custodian	record, settle or hold securities in different roles	where are the assets held of record?

Legal definitions vary across jurisdictions. The table is a functional map; it does not replace the client's contract or the rules that apply.

What a trading venue does

A venue establishes admission rules, order types, priorities, auctions, trading hours, tick size and suspension procedures. It may use a matching engine, but not every market is a single, fully visible central order book.

Under European Union law, the category trading venue includes regulated markets, MTFs and OTFs. A systematic internaliser or a dealer executing bilaterally does not thereby become a trading venue. In commercial language, “exchange” is sometimes used more loosely, particularly for digital assets: the platform's legal form and actual rules must be checked.

What a broker may do

A broker is not necessarily the market on which execution occurs. It may:

transmit the order to a venue;
choose among several venues or liquidity providers;
forward it to a market maker;
internalise it under the applicable rules;
receive a client's specific instruction about the venue;
offer an OTC product for which it is the counterparty.

The route affects price, execution probability and speed, costs and the possibility of price improvement. An explicit commission of zero therefore does not prove that total cost is zero: spread, possible mark-ups, financing, currency conversion, slippage and routing conflicts may remain.

Commercial labels such as A-book, B-book, STP or ECN are not, by themselves, a complete regulatory classification or proof of quality. The client should read the execution policy, conflicts disclosure, product terms and execution reports.

Counterparty and custody are not the same

The counterparty is the entity against which the obligation from a specific transaction arises. The custodian is the entity that holds or administers the assets after purchase. A broker may also offer custody, use a third-party depositary or record securities through an indirect holding model; an OTC derivative may instead create a contractual claim without transferring ownership of the underlying asset.

The presence of a CCP also changes the post-trade relationship: the CCP interposes itself under the clearing rules, but does not automatically replace the broker, custodian or central securities depository. The Clearing, settlement and custody entry separates these stages.

Platforms that combine several roles

Some firms simultaneously operate the interface, venue, broker, dealer, custodian and lender. Combining these functions can simplify the user experience, but makes operational questions more important:

which legal entity is the client's contractual party?
does the order enter an order book or remain bilateral?
who determines the price, and from which feed?
are client assets segregated, and under which rules?
is there central clearing or direct exposure to the provider?
where can a complaint be filed, and which authority supervises the entity?

This checklist also applies when a brand uses the word “exchange”. The commercial name does not answer the questions.

Common mistake — Concluding that an exchange cannot have conflicts, that a broker always acts as agent, or that the entity displaying a balance is also the final owner or custodian of the assets. Each role must be verified separately.