Commission

A commission is a transaction fee earned by a broker or investment adviser for buying or selling a security on behalf of a client. Commissions are a major form of revenue for brokerage firms. A commissioned broker earns a fee for every trade execution. This type of arrangement raises the possibility of churning or excess activity in an account just to generate commissions. Discount brokerages tend to charge the lowest commissions but they may not offer any guidance or research. There are soft-dollar commissions which come commission revenues generated by brokerage activity are directed by the institutional investment managers that generated the activity. Soft dollar commissions are directed by the investment managers towards goods and services that are intended to be of benefit to actual clients. Examples of goods and services include software, research and computer equipment.