Execution & trading costs

Commission

Commission is a fee a broker charges for handling a trade, stated per order, per share, or as a percentage of trade value.

What it means

Your broker may charge a commission when you trade a stock. It is an explicit fee, separate from the price paid for the shares. A broker might charge a flat amount per order, an amount per share, or a percentage of the trade's value. Minimum fees can also apply. The applicable schedule depends on the broker, account, market, and type of trade.

A commission is only one part of transaction costs. The bid-ask spread is the difference between the quoted buying and selling prices; market impact is a price change associated with executing an order. These costs can exist even when the quoted commission is US$0. Other charges, such as regulatory or exchange fees, may also appear separately. Check your broker's fee schedule to see which amounts it labels as commissions and which it lists as other charges.

How it is calculated

There is no universal commission formula because brokers use different schedules. Common arrangements include:

  • Flat fee: Commission (US$) = fee per order (US$).
  • Per-share fee: Commission (US$) = number of shares × fee per share (US$/share).
  • Percentage fee: Commission (US$) = trade value (US$) × commission rate (decimal), where trade value (US$) = number of shares × execution price (US$/share).

Number of shares is the quantity filled, and execution price is the price per filled share. Fee per order is a fixed amount charged for an order under the stated schedule. Fee per share is the broker's charge for each share; commission rate is the percentage expressed as a decimal—for example, 0.10% is 0.001. Some schedules impose a minimum, in which case the commission for that trade is the greater of the calculated fee and the minimum. Confirm how your broker treats partial fills and orders executed over multiple days; a flat fee may not always correspond to one charge for the entire intended trade.

Worked example

Suppose, hypothetically, a broker charges US$0.02 per share, with a US$5 minimum per trade. An investor's order for 100 shares fills at US$50 per share. Ignore other charges for this example.

  1. Trade value: 100 shares × US$50/share = US$5,000.
  2. Per-share calculation: 100 shares × US$0.02/share = US$2.
  3. Apply the minimum: the commission is US$5, rather than US$2.
  4. For a purchase, shares plus commission cost US$5,000 + US$5 = US$5,005, before spread, market impact, and any other charges.

The commission is US$5 / US$5,000 = 0.001, or 0.10% of this trade's value. If the investor later sells, that sale may incur its own commission under the broker's schedule; it is not included here.

Why it matters before you trade

A known commission can be included in an estimated trading budget before an order is placed. Minimum fees can make a small trade's commission a larger percentage of its value than a larger trade's. For a basket of stocks, checking each line matters if the broker charges separately for each trade.

Commission is generally more straightforward to estimate from a published fee schedule than spread or market impact, which depend on execution conditions. Keeping these components separate helps avoid treating a low stated commission as proof of low total execution cost. An estimate should also distinguish the intended order from the quantity actually filled.

How PreTrAIde uses it

PreTrAIde is pre-trade analysis software, not a broker: it does not receive, transmit, or execute orders. Its stated quantitative estimates include bid-ask spread and market impact; the product facts do not specify a broker-commission input or commission calculation in its basket analysis. A pre-trade check can therefore pair PreTrAIde's decision-support analysis with the commission schedule from the broker where the user places trades. PreTrAIde's free trading cost calculator covers spread and market impact, not a stated broker commission.

Common mistakes

  • Equating commission with total cost. Spread, market impact, and other charges are distinct.
  • Ignoring minimum fees. Multiplying shares by a per-share rate can understate the charge.
  • Counting only the purchase. A later sale can carry a separate commission.
  • Assuming every fill is charged alike. The broker's rules for partial fills and orders spanning trading days determine the applicable fees.
  • Confusing a US$0 commission with a free trade. Other execution costs may still apply.

Frequently asked questions

Is commission the same as the bid-ask spread?

No. Commission is an explicit broker fee; the bid-ask spread is the difference between quoted buying and selling prices. Both can contribute to trading costs.

How do I calculate commission on a stock trade?

Use your broker's schedule: multiply the filled shares by the per-share fee, multiply trade value by a percentage rate, or apply the stated flat fee. Then check any minimum fee and rules for partial fills.

Does a commission-free stock trade have no costs?

Not necessarily. A US$0 commission does not eliminate the bid-ask spread, possible market impact, or other applicable charges.

Related terms

Transaction costs Transaction costs are the explicit fees and implicit trading costs incurred when executing a trade, including commissions, the bid-ask spread and market impact. Bid-ask spread Bid-ask spread is the difference between the lowest displayed price to sell a stock (ask) and the highest displayed price to buy it (bid), measured per share. Market impact Market impact is the price movement attributable to executing a trade, as the order consumes available liquidity or prompts other market participants to adjust their prices. Broker Broker is a firm or individual that handles a customer's securities orders, connecting the customer to trading venues or other parties that can execute them. Pre-trade analysis Pre-trade analysis is the assessment of a proposed stock order or basket before placement, estimating execution costs, liquidity and risk to inform the investor’s decision and execution approach.

Execution & trading costs

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Educational content, not investment advice. PreTrAIde is analysis software, not a broker: it never executes orders, and its verdicts are decision support, not recommendations to buy or sell.