What Is a Commission
A commission is a fee charged by a broker, agent or a firm for offering his services in facilitating the buying and selling of an asset between a buyer and a seller. Commissions may be charged for negotiations, sales and purchases of assets, delivery of the assets or advises on an investment. Brokers may charge you a specific percent or a flat fee. The brokerage and types of brokerage may vary according to the assets dealt with. Commission charged usually plays a huge role in securities market and can also help in earning a lot of revenue for the firms in the market.
Most brokerage firms have a huge variety of clientele including individual and institutional customers. A broker assists in completing transactions done between a buyer and seller in the capital market. The broker charges a small amount of commission for the services provided by him. This commission is called brokerage commission. The brokerage commission may vary accordingly with different firms in the market. Brokerage firms also reduce the brokerages charged if the amount of money invested by the customer is considerably higher. Brokerage in securities transactions have two main categories depending on the brokerages plan. The commission charged is relatively cheaper if one opts for a discount broker. Discount brokers offer relatively smaller charges without offering any more services apart from executing trades. One can opt for full service based plans, where the commissions are higher, but you will have the advantage of market research and investment advisory services by the firm
There are a number of assets and contracts that one can deal with in the market. To trade in the capital market one must open a demat account, which dematerialises all the assets and are stored in an electronic format. Brokers advise you in advising and also helps in transacting the contracts that you wish to trade in. They may charge you for buying and selling of contracts. There are many different types of commissions depending upon the firms. Some may choose to charge a fixed amount on a transaction, while others levy a small percentage on the amount invested.
There are many types of brokerages that can be charged by the brokers. There are three different patterns of commission that brokers may charge. They are fixed commission, Variable commission and Commission directly charged on the asset. In fixed commission, the brokerage charged remains fixed regardless of the price movement, as the market vitality is ignored in this case. In the variable commission is dependent on the current status of the asset. A broker often provides the most economical and cheapest commission available in the market to attract more customers to the firm.