Agency Model

The agency model is a business arrangement in which a firm executes transactions on behalf of a client for a disclosed fee or commission, rather than trading against the client from its own inventory. The agent's compensation is the fee itself, so it has no direct stake in the price the client pays or receives.

Why it matters

The alternative is the principal or dealer model, where the firm sells you an asset it owns and earns the spread between its buy and sell prices. That spread is often invisible to the customer. Under an agency model, the markup is replaced by an explicit commission, which makes true costs easier to compare. Much of the debate about fairness in retail investing, from equity payment for order flow to bullion dealer markups, is really a debate about principal versus agency execution.

Neither model is inherently better. Dealers provide immediacy and inventory, while agents provide alignment and transparency, usually at the cost of slower execution.

In the gold vs bitcoin debate

Most retail gold is sold on the principal model: dealers buy coins below spot and sell above it, with premiums on popular coins often running several percent. Bitcoin bought on a major exchange is closer to agency execution, with a stated trading fee frequently under 1 percent against a transparent order book. Cost-conscious buyers of either asset should ask the same question: am I paying a visible commission, or a spread I cannot see.