Comparison of Four Financial Markets

Quote-driven dealer markets:
in this market type, the dealers participate in each trade by quoting the bid and ask prices once requested by brokers or traders. Traders request quote and negotiate with a number of the security’s dealers and normally select the dealer with the best quote that suites their order.

Order driven (auction) market:
include oral auction (open outcry), singlepriced auction, continuous rule-based two-sided auction and crossing networks. In this type of markets, trader orders for any particular security are centralized in a single orderbook where buyers are seeking the lowest price and sellers are seeking the highest price. An order-driven market uses order precedence rules to match buyer to sellers and trade pricing

Brokered market:
in such markets, brokers take the role of the exchange order matching under certain circumstances which is normally called crossing. Brokers’ role is to search for a counterparty trader(s) for a trading request. This is normally occurs for very large trading orders which is called block orders. In dealer market, the dealer sometimes refuses to conduct risky trades due to expected abnormal price movement or in illiquid securities.

Hybrid markets:
Combine characteristics of the previous three market types may be presented. Normally, the market structure features of one market type are the dominant while some other features from other markets types are embedded.