Brokerage commission

A brokerage commission is the fee a professional intermediary withholds for accepting a client's order, routing it to the organised market and carrying the trade through to settlement. It is paid by the holder of a brokerage account on every purchase and every sale, and its size is set by the pricing plan chosen when the agreement with the broker was signed.

What the fee is made up of

The calculation base is the monetary value of the order, that is, the execution price multiplied by the number of securities. The plan's percentage rate is applied to this base, so the fee grows in proportion to the size of the trade, not to the number of orders. On top of the rate, a plan often sets a minimum per order: if the calculated percentage comes out below this threshold, the threshold is charged instead, and for small orders the effective rate ends up higher than the stated one. The plan also specifies separately whether the commission is split when an order is partially filled: one order closed by several trades at different prices may be charged as several transactions. On plans without a fixed subscription fee the rate is usually higher, on plans with a monthly payment it is lower, and the choice between them depends on how often the client submits orders.

How it is calculated on a specific security

Let us take a security from the exchange's list:

The commission on a purchase is calculated not on the price of one share but on the value of the order: the current quote is multiplied by the number of securities in the order, and the plan's percentage rate is applied to the resulting amount. When the same position is sold, the fee is withheld again — in other words, any completed round trip is paid for twice, on entry and on exit, and this doubles the threshold that the price move has to clear for the result to turn positive.

What a brokerage commission does not include

The main mistake is to treat it as the full cost of a transaction. A brokerage commission covers neither the exchange fee charged by the trading venue nor the depositary fee for the safekeeping of securities. Nor does it include the difference between the best bid and ask prices: on securities with low liquidity it can exceed the commission itself, and pricing plans can be compared properly only as part of total execution costs. Carrying a position overnight in margin trading, withdrawing cash and non-trading instructions are charged separately — the commission per trade says nothing about them.