Commission Trading: What Is Realistic To Pay? | Definition, Example, Rebate, Slippage Explained

It costs money to trade, and one of the costs is commissions to your broker. No one works for free, but luckily costs have gone down a lot the last two decades. What is a commission trading, and how important is it?

A commission refers to a fee imposed by a broker or investment advisor when executing trades or providing investment advice for clients in the securities market. The specific commission amount can vary across brokers, influenced by factors such as the traded asset and the type of service provided. Typically, brokers who solely execute trades without making decisions on behalf of clients or offering investment advice tend to charge lower commissions. If you are trading the most liquid assets and instruments, commissions (and slippage) are very low.

In this article, we look at commissions in trading: what it is, types of costs and commissions, no-commissions brokers, how to get “paid” (rebate) a commission, and how it affects your trading performance.

Some key takeaways:

• Picking the right broker for your investment/trading style is important;
• We pay cirka 0.015% for a round trip in commissions when trading high-priced and liquid ETFs; and
• Comparing backtests to live trading, we estimate a cost of 0.01% per round trip in slippage if we stick to the most liquid ETFs.