Commission and how it is charged

Commission is the part of a trading cost that appears as its own line. Unlike the spread, which is embedded in the price and never debited separately, commission is calculated, posted to the account and shown on the confirmation, which makes it the easier of the two to audit and the harder of the two to overlook. What makes it awkward to compare between firms is not the number but the basis: the same charge can be quoted three different ways, and two of the three produce figures that differ by a factor of two for identical economics.

The three bases a commission is quoted on 

The first basis is per lot per side. A charge is applied when the position opens and again when it closes, so the figure quoted is half of what a complete round trip costs. This is the most common convention on accounts that pass through a raw market spread, and it is unambiguous only when the words per side are actually printed alongside it.

The second is per lot round turn, which states the total for opening and closing together. A round turn figure and a per side figure describing the same account differ by exactly two, and a comparison that reads one of each as though they were the same basis will conclude that one firm is twice as expensive as another that charges identically.

The third is an amount per unit of notional value, most often expressed per hundred thousand of currency traded. This basis is common on platforms that came out of the institutional world, and it behaves differently from the other two in one important respect: it scales with the price of the instrument rather than with the number of lots. A notional basis and a per lot basis therefore diverge as an instrument's price moves, and converting one into the other requires knowing the price at the moment of the trade. A per lot restatement of a notional charge is an invented figure, not a translation.

When the charge is applied 

On most platforms the opening commission is posted at the moment the opening order fills and reduces the free balance immediately, while the closing commission is posted when the closing order fills. Some platforms post the entire round turn at opening instead, which makes the first appearance of the charge larger and the closing entry zero. Both are common, both are disclosed, and the difference is one of presentation rather than of amount.

A position that is partly closed is charged proportionally on the quantity closed, so a position closed in three pieces carries three closing commission entries that sum to the charge on the whole. A position that is closed by the platform rather than by an instruction, whether by a stop order or by a margin close out, is charged on the same basis as any other closing trade. Commission is a function of the trade, never of who initiated it.

Commission and spread together 

Neither number describes the cost of a trade on its own. A narrow spread with a commission and a wider spread without one are two ways of charging for the same service, and the only figure that compares them is the sum of the two expressed in the same unit. Converting a commission into the price unit of the instrument is the step that makes the comparison possible: the charge is divided by the value of one pip or point on the same quantity, which restates it as a distance in the price.

The last row is the point of the exercise. Two structures that look very different on a marketing page can produce an identical total, and which of them is cheaper for a given pattern of trading depends on the instruments involved and the hours in which positions are opened, because the spread half of the sum varies and the commission half does not.

The currency the charge is denominated in 

A commission quoted in one currency and posted to an account denominated in another is converted at the firm's prevailing rate at the time of the trade. The converted amount is what appears on the statement, so the figure debited will differ slightly from the quoted schedule whenever the exchange rate has moved. This is a conversion rather than an additional charge, though any spread applied to that conversion is a real cost and is disclosed separately.

The same applies to the notional basis, where the notional value is measured in the instrument's own currency before the charge is calculated. A position in an instrument quoted in a currency other than the account currency therefore carries two conversion steps, one for the notional measurement and one for the resulting charge, and both are visible on a detailed statement.

What commission is not 

Commission is not financing. A financing adjustment accrues for as long as a position stays open and is a function of time, while commission is a function of the trade and is charged whether the position lasts a second or a year. Commission is also not a spread markup: where a firm charges commission and passes through a raw market spread, the spread it passes through is the market's own, and the commission is the disclosed alternative to widening it.

Nor is it slippage. Slippage is the difference between an expected price and an achieved price and can fall on either side of the expectation, whereas commission is a known amount computed from a published schedule. Statements list them as separate entries for precisely that reason, and reading a poor fill as a higher commission, or the reverse, obscures which of the two is worth examining.