When acting as a principal, what charge will a securities firm typically impose?

When a securities firm acts as a principal in a transaction, it buys and sells securities for its own account rather than on behalf of a client. In this scenario, the firm typically adds a markup to the price at which it sells the securities. This markup is essentially the difference between the price at which the firm purchased the security and the price at which it sells it to the customer. The markup serves as the firm's revenue for the transaction.

This practice is fundamentally different from when a firm acts as an agent, where it would earn a commission for facilitating a trade on behalf of a client. In principal transactions, the firm assumes the market risk associated with holding the securities, and the markup reflects that risk along with the service provided. The concept of markup is central to understanding how firms generate revenue in their role as principals in the securities market.