Commission is the explicit fee you pay to have a trade executed or a related service carried out. It’s usually quoted per order, per share or contract, or as a percentage of the trade value.
Unlike the spread, which is built into the price, commission appears as a line item on your ticket or statement. You may pay it when you open and when you close, so the round-trip cost matters.
Who charges commission and when is it applied?
Your broker typically charges commission for routing and executing your order. On exchange-traded products there may also be venue or clearing fees that are passed through to you. In over-the-counter markets, dealers can price a separate commission or include their compensation in the spread. Exact practices vary by provider and market.
Commission can apply at several points:
- Placing a buy or sell order, including short sales.
- Closing a position, which means you often pay on both sides of the trade.
- Options exercise or assignment, and futures delivery or cash settlement, depending on the broker.
- Corporate actions processed on your instruction, such as tender offers or odd-lot sell-outs, though these are less common.
You’ll usually see the charge on the order ticket before you confirm, then again on the contract note and account statement after execution.
Common commission pricing models
Brokers publish pricing schedules. The main structures you’ll see are:
- Flat per order. A single fee per executed order, regardless of size, sometimes with minimums on very small trades.
- Per share or per contract. Charged by unit. This can suit smaller orders but can add up on large sizes. Plans often have a minimum ticket charge.
- Percentage of trade value. A fee that scales with notional value. You may see tiered discounts for higher volumes.
- Tiered or bundled. Lower rates after you reach a monthly volume threshold, or “all-in” pricing that wraps in venue and clearing fees.
- Different rates by channel. Placing a phone order with a human dealer often costs more than doing it online.
On some platforms, exchange or regulatory fees are passed through on top of broker commission. In other cases, those are bundled. The schedule can also differ by asset class, so options and futures often have per-contract pricing while equities sometimes use per-share or flat fees.
What “commission-free” usually means
Commission-free stock or ETF trading means the broker isn’t charging an explicit ticket fee on those orders. Trading still has costs:
- Spread. You buy at the bid or ask, so the gap between them is an implicit cost, especially in less liquid names or outside peak hours.
- Venue and pass-through fees. Options and futures exchanges, and many crypto venues, levy maker or taker fees that may still apply.
- FX conversion. Buying foreign-listed assets can involve a currency conversion spread or fee.
- Other revenue streams. Some brokers earn from interest on idle cash, securities lending or routing rebates. None of these make your trade free of market impact or spread costs.
Read the small print. Commission-free often applies to a subset of assets, with different charges for options, futures or phone orders.
How commission affects your breakeven
Commission widens the price move you need to cover costs. A simple example shows the mechanics:
Say you buy 100 shares at £10.00. Your broker charges £5 commission per trade. Your entry cost is £1,000 plus £5, so £1,005. If you later sell the 100 shares at £10.10 and pay another £5 commission, your proceeds are £1,010 minus £5, so £1,005. You’ve only just broken even, excluding any other fees and taxes. The round-trip commission of £10 required a 10 pence move to cover it, which is 10 pence per share.
Now imagine a per-share plan of 0.5 pence per share with a £1 minimum. For a 200-share order the fee is 200 × 0.5p = £1. For 2,000 shares it’s £10. Your breakeven move scales with size under this model.
With options, commission is usually per contract. Buy 5 contracts at a 50 pence premium with a 75 pence-per-contract commission. The entry fee is £3.75, the exit fee may be similar, and exchange fees can be extra. With futures, commission is typically per side, per contract, plus clearing and exchange charges. In each case, the round-trip commission is part of the hurdle the trade must overcome.
For tax reporting, some countries allow commissions to be included in the cost basis or proceeds when working out capital gains tax. The details vary by jurisdiction and can change, so check the current rules where you file.
How commissions differ across markets
Equities and ETFs. You’ll see flat, per-share or percentage fees. On small orders a minimum ticket charge often bites. Commission-free offers are common for cash equities in some regions.
Options. Most brokers charge per contract, often with a base ticket fee. Exchange and regulatory fees are frequently passed through as separate line items. Exercises or assignments may have their own charges.
Futures. Pricing is per contract, per side. You also face exchange and clearing fees. Some brokers bundle these into an all-in rate, others itemise them.
Foreign exchange. Many retail accounts quote a spread with no explicit commission. ECN-style accounts often show tight raw spreads and charge commission per lot instead. The effective cost is the spread plus any commission.
Crypto. Centralised exchanges commonly use maker and taker fees, which are functionally commissions based on notional traded, with tiered discounts for higher volumes. In decentralised finance, you pay network gas fees to miners or validators, which are not commissions paid to a broker.
Practical ways to keep commission in perspective
- Look at total cost. Add explicit commission to implicit costs like spread and slippage. A low commission doesn’t help if you cross a wide spread with a market order.
- Match plan to style. If you trade small tickets frequently, a low flat fee or commission-free plan can matter. If you trade larger size, per-share pricing might scale better, provided minimums and tiers are sensible. Providers differ.
- Avoid accidental fees. Phone orders, very small odd-lots, or trading outside regular hours can carry higher charges. Check the schedule before placing a non-standard order.
- Mind order placement. Limit orders can help you control the price you pay, which affects the spread cost. They don’t change the commission but can reduce overall cost.
- Consolidate with care. Combining several tiny orders into one can reduce per-ticket minimums, though very large single orders might move the market. Balance commission against potential price impact.
Commission is just one line in the trading ledger, but it’s a predictable one. Know how your broker charges, factor the round-trip into your sizing and targets, and you’ll have a clearer picture of what a trade must earn to be worthwhile.