Basics of Stock Trading Commissions

Wall Street

A stock trading commission is the cost that occurs due to a trading transaction. It is important to know about commissions because they dramatically affect your profit.

Buy or Sell Commissions

Whenever a stock is purchased, the cost of the transaction goes to the stock broker in the form of a commission. If a stock is sold, there is also a commission.

Price

If you buy or sell more shares of a stock, your commission will be less money. This is because the broker will have more money in his account due to the higher quantity of shares being moved.

Commissions and Profit

To make a profit in the stock market, you need your stock to increase in value more than the cost of the commission. Many people buy stocks that go up only enough to break even with their commission costs. This is called a paper-profit.

Phone Commissions

Telephone

If your broker allows you to trade stocks over the telephone, commissions are usually around $15.

Electronic Commissions

Computer

If your broker has created an electronic account for your holdings, you can trade stocks online by simply signing into your account. These commissions will be less than trading on the telephone, but you will not get to talk over your decisions with a broker.

History

Money

Until the second half of the 20th century, commissions were very expensive. This fact stopped the average American from buying stocks. Today stock commissions are not as expensive and allow many Americans to invest.

References

• "Understanding Wall Street"; Jeffrey B. Little and Lucien Rhodes, 2010