Simple definition
A commission is a fee a broker charges each time it buys or sells an investment for you. It's the broker's cut for handling the trade. Commissions can be a flat amount per trade or a percentage of the deal. Think of it like a service charge for placing your order. Many online brokers now charge $0 commission on stock and ETF trades, but other products can still carry them.
Why it matters
Commissions eat directly into your returns, and they add up fast if you trade often. A few dollars per trade sounds small, but frequent trading multiplies it. Knowing what you're charged — and choosing commission-free options where they exist — keeps more of every dollar working for you instead of your broker.
Real-life example
Imagine a broker charges a $10 commission per trade. You buy a stock for $500, paying $10, and later sell it for $600, paying another $10. That's $20 in commissions, so your $100 gain is really $80. At a commission-free broker, you'd have kept the full $100.
Common mistakes
- Trading frequently and letting small per-trade commissions quietly pile up.
- Focusing only on commissions while ignoring other fees like expense ratios and loads.
- Assuming '$0 commission' means the investment is completely free of costs.
- Paying commissions on products where a no-commission alternative exists.
Pro tips
- Choose a broker offering commission-free stock and ETF trades.
- Trade less often — every trade you skip is a fee you avoid.
- Read the full fee schedule; commissions are just one line on it.
- Watch for commissions on options, mutual funds, and broker-assisted trades.
Related Money Dictionary terms
- BrokerA firm or person that carries out your orders to buy and sell investments, often for a fee or commission.
- Brokerage AccountAn account you open with an investment firm to buy and sell stocks, bonds, funds, and other investments.
- Management FeeThe charge a fund or advisor collects for managing your investments, often a yearly percentage of your balance.
- Load FundA mutual fund that charges a sales fee when you buy or sell, reducing the amount that goes to work for you.
- Expense RatioThe yearly fee a fund charges, shown as a percentage of your investment, that covers its operating costs.
- Market OrderAn instruction to buy or sell an investment right away at the best price currently available.
Frequently asked questions
Aren't all trades free now?
Many online brokers dropped commissions on U.S. stock and ETF trades, so those are often free. But 'free' isn't universal — options contracts, mutual funds, broker-assisted trades, and some other products can still carry commissions. Always check the fee schedule rather than assuming everything is commission-free.
What's the difference between a commission and a management fee?
A commission is a one-time charge for a single trade. A management fee is an ongoing charge — usually a percentage of your balance each year — for managing a fund or portfolio. You might pay a commission to buy a fund and then pay its annual fee to hold it.
How do commissions affect my returns?
Every commission comes straight out of your money, so it directly lowers your return. The impact grows with how often you trade, since frequent trading multiplies the fees. Over years, even modest commissions can add up to a meaningful drag, which is why low- or no-commission investing is worth seeking out.
Knowing what Commission means is knowledge — the first half. A brick gets placed when you act on it: read your broker's fee schedule and note what you actually pay per trade.
Sources & references
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Plain-English education — not personalized legal, tax, or investment advice.