The cost of services provided by a broker or advisor for buying or selling financial instruments or providing advice is called trading commission. Trading commissions are commonly based on the volume of financial instruments bought or sold by a broker on behalf of the trader, in contrast to a fee based advisor who charges a flat rate for managing a client’s assets and capital.
Traders must be knowledgeable about commission costs, and take them into consideration brainstorming their trading plan, executing their trades, and calculating their profit. For example, a broker can charge 2% commission on a deal for buying shares and 2% commission for selling the shares at a later date, which will affect the trader’s net gain for the two transactions.
Brokerages who offer a complete set of services to customers generally get more profit than those who offer partial services, because the customer will do all their transactions with them out of convenience. In general, the rates of commissions received by brokerages vary greatly from one brokerage to another, and each brokerage has different rates, even for the same services. Online discount brokerages are extremely popular nowadays, and traders can buy and sell stocks and index funds for a flat fee on a per share or contract basis. For traders to save money on commissions, they can consider investing in exchange-traded funds which is lower cost, or using a brokerage company who charges no commissions for certain transactions.