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Glossary

Commission

A commission is a fee paid to a broker, agent or salesperson for executing a trade or arranging a financial transaction, often calculated as a percentage of the transaction's value or as a flat amount per trade.

What Is a Commission?

In finance, a commission is the fee an investor pays to a broker for handling a buy or sell order. The broker earns this charge for acting as the intermediary between the investor and the market, whether that means routing an order to an exchange or finding a counterparty. Commissions also apply in other areas, such as insurance, real estate and sales, where an agent is paid for arranging a deal.

How Commissions Work

Historically, most brokers charged commissions based on the size of a trade, often with a minimum fee. Many large online brokers in the United States and elsewhere have since moved to zero-commission pricing for common stock and exchange-traded fund trades. Brokers that no longer charge an explicit commission may still earn revenue in other ways, such as through payment for order flow, interest on customer cash balances, or fees on other products. Commissions remain common for some asset types, including options, certain mutual funds sold through advisers, and trades placed through full-service firms.

Commission costs can be expressed as a flat amount per trade:

Total cost = Commission per trade + Trade value

Example

Suppose an investor buys 100 shares of a stock at $50 per share, and the broker charges a flat $5 commission. The trade value is $5,000, and the total cost of the purchase is $5,005. When the investor later sells the shares, a second commission may apply, which reduces the net proceeds.

Why It Matters to Investors

Commissions are a direct cost that reduces investment returns. Even small fees can add up for investors who trade frequently or make many small purchases. Investors often compare the total cost of ownership, including expense ratios and bid-ask spread costs, rather than looking at commissions alone. Understanding how a broker is compensated helps investors evaluate the true cost of trading.

Updated October 16, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Broker

A broker is a person or firm that buys and sells securities on behalf of clients, typically in exchange for a commission or fee, and often executes trades through an exchange or other market.

Mutual Fund

A mutual fund is a pooled investment in which many investors combine money under professional management to buy a diversified portfolio of securities, with shares priced once per trading day.

Expense Ratio (ER)

An expense ratio is the annual fee a fund charges, expressed as a percentage of the fund's average net assets, that covers the cost of running the investment.

Bid-Ask Spread

The bid-ask spread is the difference between the highest price a buyer is willing to pay for a security and the lowest price a seller is willing to accept, at a given moment.

Sales Load

A sales load is a fee charged when buying, selling, or holding certain mutual fund shares, paid to the sellers or advisers who distribute the fund.

Transaction Costs

Transaction costs are the expenses an investor pays to buy or sell a security, including commissions, fees, bid-ask spreads, and market impact, which reduce the net return of a trade.

Dealer

A dealer is a firm or individual that buys and sells securities for its own account, quoting bid and ask prices and earning profit from the difference between them.