DEFINITION of 'Commission'

A service charge assessed by a broker or investment advisor in return for providing investment advice and/or handling the purchase or sale of a security. Most major, full-service brokerages derive most of their profits from charging commissions on client transactions. Commissions vary widely from brokerage to brokerage.

BREAKING DOWN 'Commission'

The brokerage with the lowest commissions is not necessarily the best one. Discount brokerages offer no advice, which can prove to be troublesome for many rookie investors. On the other hand, full-service brokerages offer a more personalized service, but commissions are much higher.

However, when commission is charged there is the potential for a conflict of interest to develop between brokerages and their clients. Because commission compensated brokers will not get paid very much if their clients do not conduct many transactions, unethical brokers may encourage clients to conduct more trades than necessary.

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