Commission
Family IV · Costs
Not to be confused with spread, swap.
Commission is a transaction-based charge levied by a broker for executing an order on a client's behalf. It is quoted per share, per lot, per contract, or as a percentage of notional value, and is billed separately from the quoted price. Commission structures vary by broker, instrument, account type, and regulator, so the same trade can carry different charges at different firms.
How commission is calculated
Commission is usually applied to the executed quantity, not to the order's notional value, though percentage-of-value models also exist. Common structures include:
- Per-share: a fixed amount for each share or unit traded, often with a minimum ticket charge.
- Per-lot: a fixed amount for each standard lot in foreign exchange or each contract in futures.
- Percentage of value: a rate applied to the trade's notional amount, common in some equity and bond markets.
- Tiered: the per-unit rate falls as monthly volume rises.
Commission is charged on entry and on exit, so a round trip incurs the fee twice. Some brokers advertise zero commission but recover the cost through a wider spread or a separate fee.
Worked example
What determines the charge
The commission rate is set by the broker and depends on the instrument, the account type, the client's monthly volume, and the regulatory jurisdiction. Some regulators require commissions to be disclosed separately from the spread; others permit bundled pricing. Minimum ticket charges, inactivity fees, and exchange fees may apply in addition. Because these terms vary, the effective cost of a trade should be checked against the broker's current fee schedule rather than assumed from a headline rate.
Often confused with
- spread
- A spread is the difference between the bid and ask price and is embedded in the quote, whereas a commission is a separate charge added to the trade; the visible sign is whether the cost appears as a line item on the statement or is already inside the quoted price.
- swap
- A swap is a financing charge or credit for holding a position overnight, while a commission is charged for executing the trade itself; the visible sign is whether the fee is applied at order execution or at the daily rollover.