How does a dealer primarily make money in financial markets?

A dealer primarily makes money in financial markets through the price difference between buying and selling, commonly referred to as the bid-ask spread. When a dealer quotes prices, they provide two distinct prices: the bid price, which is the price at which they are willing to buy an asset, and the ask price, which is the price at which they are willing to sell it.

The dealer profits from the difference between these two prices. For example, if a dealer buys a stock at $50 (the bid price) and sells it at $52 (the ask price), the dealer earns $2 per share in profit. This model allows dealers to facilitate liquidity in the market while also earning a profit simply through the transactions they conduct.

In contrast, while high commissions on trades might contribute to profits, they are not the primary means by which dealers generate revenue. Executing orders for clients may earn commission or fees, but those relate more closely to brokers rather than dealers. Investment strategy consulting fees typically apply to advisory services rather than trading activities specific to dealers. Thus, the essence of a dealer's profitability resides in the bid-ask spread, reinforcing why this answer is correct.