Commission Model

A commission model is a broker pricing structure in which an explicit, disclosed fee is charged for each trade executed. This fee is separate from, and in addition to, any natural bid-ask spread the market imposes. Commission may be structured as a flat fee per order, a rate per unit traded, or a percentage of notional value. Commission-based brokers often pass through tighter or raw spreads because their income derives from the per-trade fee rather than a spread mark-up. The model contrasts with the spread-only model, where all broker revenue is embedded in a wider spread and no separate fee appears.

In plain English — Brokers earn revenue in two main ways: by widening the spread (a spread mark-up) or by charging a separate, visible fee per trade (a commission). Under a commission model, the broker's revenue is transparent — it appears as a distinct line item on your trade confirmation. The fee may be a flat amount per order, a per-unit rate (per share, per lot, or per contract), or a small percentage of the notional trade value. Commission-based brokers often pair lower commissions with tighter spreads, because their revenue does not depend on the spread itself. The key advantage is cost visibility: you can calculate your break-even point precisely before placing a trade.

A trader uses a broker that charges $4 per side (entry and exit) for a forex standard lot trade. They buy EUR/USD and pay $4 commission. Later they close the trade and pay another $4. Their total commission cost for the round trip is $8. If the trade captured 10 pips (approximately $100 on a standard lot), the net profit after commissions is $92. Had they used a spread-only broker with a 1-pip mark-up instead, the embedded cost would have been approximately $10 each way — $20 round trip — making the commission model cheaper in this illustration. The comparison reverses for smaller trades. These figures are illustrative only.