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.

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