Commission Broker


DEFINITION of 'Commission Broker'

Someone who gets paid by the brokerage company for which he works for each order of securities he executes on a customer's behalf. The commission structure can encourage unethical behavior by unscrupulous commission brokers. For example, a dishonest commission broker may engage in a practice called churning, which means executing multiple trades in a customer's account for the sole purpose of generating more commissions. The additional trades do not benefit the customer.

BREAKING DOWN 'Commission Broker'

A broker who charges a flat fee for his or her services rather than earning a commission based on order size has more incentive to put the customer's best interest first. A flat-fee broker will not have an incentive to push a customer into certain securities because they are paying a high commission. Instead, he or she will have an incentive to get the customer into the best-performing investments so the customer will be loyal to that broker and be a steady source of business.

  1. Address Commission

    The fee paid by vessel owners to charterers, the party who owns ...
  2. Outside Broker

    1. A real estate salesperson and deal facilitator who works for ...
  3. Flat Dollar

    A fixed dollar amount, generally in the context of fees or commissions ...
  4. Soft Commissions

    Any type of commission that is not paid in actual dollars. Soft ...
  5. Churning

    Excessive trading by a broker in a client's account largely to ...
  6. Commission

    A service charge assessed by a broker or investment advisor in ...
Related Articles
  1. Investing Basics

    Picking Your First Broker

    If you're a rookie investor, your first big investment decision should be an informed one.
  2. Brokers

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  3. Investing Basics

    Paying Your Investment Advisor - Fees Or Commissions?

    The way a professional is compensated can affect quality of service. Learn more here.
  4. Retirement

    Choosing A Compatible Broker

    We go over the factors that determine different investing personalities, and the services that best suit them.
  5. Investing

    Fee-Based Brokerage: Will They Work For You?

    Learn the pros and cons of this type of investing and whether it will work for you.
  6. Brokers

    Is Your Broker Acting In Your Best Interest?

    Learn the clues you'll need to determine whether you've chosen a reputable professional.
  7. Options & Futures

    10 Tips For Choosing An Online Broker

    This important investment decision happens before you pick your first stock. Find out how to get it right.
  8. Mutual Funds & ETFs

    4 Mutual Funds Warren Buffet Would Buy

    Learn about four mutual funds Warren Buffett would invest and recommend to his trustee, and discover detailed analysis of these mutual funds.
  9. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  10. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  1. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  2. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  3. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  4. What fees do financial advisors charge?

    Financial advisors who operate as fee-only planners charge a percentage, usually 1 to 2%, of a client's net assets. For a ... Read Full Answer >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!