Commission

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Financial Terms and Glossary

Commission

A commission is a fee charged by brokers, financial advisors, or other intermediaries for facilitating a transaction, such as buying or selling stocks, bonds, or other securities. Commissions are usually calculated as a percentage of the transaction value, although they can also be fixed fees. In financial markets, brokers charge commissions for executing trades on behalf of their clients, and these fees can vary depending on the type of security and the size of the trade.

Example

If an investor buys $10,000 worth of stocks through a broker who charges a 1% commission, the investor would pay $100 in commission for the transaction.

Key points

• A commission is a fee charged by brokers or financial intermediaries for executing transactions.

• It can be a percentage of the transaction value or a fixed amount.

• Commissions are common in financial markets for trades involving stocks, bonds, and other securities.

Quick Answers to Curious Questions

Why do brokers charge commissions?

Brokers charge commissions as compensation for facilitating the execution of trades and providing access to financial markets on behalf of clients.

How are commissions typically calculated?

Commissions are usually calculated as a percentage of the total transaction value, but some brokers may charge fixed fees per trade.

Can commissions affect investment returns?

Yes, high commissions can erode investment returns, especially for frequent traders or those with smaller portfolios, as the fees reduce the overall profitability of trades.