Commission

Commission refers to the service charge that brokers require for carrying out transactions on behalf of their clients.

This fee is typically based on the size and type of transaction.

Commissions serve as compensation for the broker for the time and effort spent facilitating the trade.

There are several different ways that commissions can be structured:

Flat Fee: The broker charges a single fixed amount regardless of the size of the transaction. This is common in discount brokerage firms.
Percentage of Trade: The broker charges a fee that is a percentage of the total value of the trade. This is more common with full-service brokers who provide additional services like research, advice, and tax planning.
Per Share (or Unit): The broker charges a fee for each share that is traded. This is less common but can be found in certain situations, especially with low-cost online brokerages.
Spread: Some brokers, especially in forex trading, make money through the spread, which is the difference between the bid and the ask price of a security. They might not charge a traditional commission but make money when traders buy at the slightly higher ask price and sell at the slightly lower bid price.

It’s important to note that while low commissions can be attractive, they are not the only factor to consider when choosing a broker.

The reliability, trade execution speed, customer service, and additional services provided by the broker are also important considerations.

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