Commission
Quick Answer
A commission is a transaction-related fee that a broker or financial intermediary may charge for executing or facilitating a trade. The amount can depend on the product, trade size, account type or pricing model. Commission is one component of trading cost and should be distinguished from spreads, financing charges and other possible fees.
How does Commission work?
A commission is generally charged when a client executes a transaction.
Depending on the market and brokerage model, it may be calculated:
as a fixed amount per transaction;
per share;
per contract;
according to trading volume;
as another transaction-based charge.
For futures trading, CME Group describes commission as a fee charged by a broker when a customer executes a futures or options-on-futures trade. CME also notes that commission structures may be calculated per contract or through other brokerage pricing arrangements.
Commission directly affects the net result of a trade because it adds to the cost of entering, exiting or both entering and exiting a position.
Key features of Commission
Several characteristics are important:
Transaction-related cost: Commission is normally associated with executing a trade.
Pricing models vary: It may be fixed, volume-based, per share, per contract or otherwise calculated.
Can apply on one or both sides: Depending on the pricing model, commission may be charged when opening, closing or at another specified stage.
Reduces net returns: A profitable price movement must still cover applicable commissions and other trading costs.
Separate from the spread: Commission and bid-ask spread are distinct transaction-cost concepts.
Not universal: Some products or account structures may have no separately stated commission while generating costs through other mechanisms.
Must be assessed with total costs: “Zero commission” does not necessarily mean trading is free of all charges.
FINRA specifically notes that zero-commission trading should not be interpreted as zero-cost investing because firms may charge or earn revenue through other fees and services.
Simple Commission example
Suppose a trader buys an instrument and the broker charges:
Opening commission: $5
The trader later closes the position and pays:
Closing commission: $5
Total commission:
$5 + $5 = $10
Suppose the trade generated a gross trading profit of:
$80
Ignoring all other costs:
Net profit = $80 − $10
Net profit = $70
If the gross trading result had instead been:
$8 profit
then after the $10 commission:
Net result = $8 − $10 = −$2
The price movement was profitable before transaction costs, but the overall result became a loss after commission.
This example is illustrative only and does not represent FxGrow commissions, account conditions or pricing.
Potential benefits and uses
Commission itself is a cost rather than an investment benefit, but understanding it is important when comparing trading arrangements and calculating performance.
Commission information can help traders:
calculate net profit and loss;
estimate break-even levels;
compare transaction costs;
assess the cost of frequent trading;
evaluate different brokerage pricing structures;
separate explicit fees from spreads and financing costs.
For active traders in particular, relatively small transaction charges can accumulate across a large number of trades.
FINRA highlights that fees and commissions reduce investment returns over time, making total-cost analysis important when evaluating financial services.
Risks, limitations and common misconceptions
A common misconception is that commission and spread are the same thing.
They are not.
A commission is an explicitly charged transaction fee.
A spread is the difference between the bid and ask prices. In some markets or business models, a firm may earn compensation through a spread or markup rather than through a separately stated commission. FINRA distinguishes commissions from markups and spreads when describing transaction costs.
Another misconception is that a zero-commission account has no trading costs. Other costs may still include:
bid-ask spreads;
financing or overnight charges;
exchange or regulatory fees;
account or platform fees;
other product-specific costs.
Commission should also not automatically be assumed to be a percentage of trade value. Depending on the market, it may instead be charged per contract, share, lot or transaction.
Finally, the commission charged by one broker, account type or instrument should never be assumed to apply to another. Pricing schedules and contractual terms must be checked individually.