The difference between principal trading and agency trading is that an agent:

In agency trading, the firm acts as an intermediary on behalf of the client, arranging the transaction in the market rather than trading from its own inventory. The firm’s role is to execute the client’s order and it is typically remunerated by a commission or explicit fee for that service. This contrasts with principal trading, where the firm trades using its own trading book and becomes the counterparty to the client. In principal trades, the firm’s economic reward is commonly embedded in the price, often through the bid-offer spread or a mark-up or mark-down, and this structure can create different conflicts of interest and best execution considerations. Option A describes principal trading, not agency. Option C also aligns more with principal dealing, where the dealer’s spread is the source of profit. Option B is incorrect because best execution obligations apply and the firm must take sufficient steps to obtain the best possible result for the client within the applicable execution policy. The clearest distinguishing feature for an agent in this question set is that an agent charges commission.