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A commission is a fee paid to a third party in exchange for assistance in completing a financial transaction. A commission may either be a percentage of the value of the transaction, or a flat fee. In financial markets, a commission is commonly associated with stock transactions.
Advances in technology have greatly reduced commission rates. Discount brokers achieve low commission rates through automation of trading and customer service. Brokers specializing in high-volume accounts may reduce commission rates by offering ECN rebates to traders providing liquidity. Stock and foreign exchange brokers may offer so-called zero commission trading. This may be a false economy for thrifty traders; instead of making money on a commission, such brokers make their money by either widening the spread or selling the right to execute the order to a market maker who can widen the spread. |
