What a Headline Commission Leaves Out of the Bill

Key findings

1. Advertised commission is one component of total trading cost. The rest of the bill depends on the instrument, the venue and the account.
2. Bid-ask spreads and execution quality can change the result even when the commission line is unchanged.
3. FX conversion can become important when the account currency and the trading currency differ.
4. A minimum fee is a larger percentage of a small transaction than of a large one, on the same tariff.
5. Ongoing costs and trading frequency change the amount left to compound. They are a different question from the cost of one order.

The difference between a commission and the total cost

A dealing commission is the charge a broker prints for accepting an order. It may be a flat amount, a percentage, a per-share rate or a per-contract rate. It may be zero. The economic cost of investing is the commission plus every other amount the investor gives up to execute and hold the position.

Those other amounts fall into five groups. Explicit costs are billed: commission, a platform charge, a passed-through venue fee. Implicit costs sit in the price: the bid-ask spread, slippage, and the market impact of a large order. Ongoing costs accrue while the position or the account is open: custody, a platform subscription, a fund’s ongoing charge. Conditional costs appear only in some events: inactivity, a withdrawal, an option exercise, a stock borrow. Taxes are set by the investor’s jurisdiction and by the instrument. A stamp duty in one market is not a feature of every market.

No single schedule covers all of them. A futures contract, a share, an ETF and a bond can be held at the same firm and still be billed on different units. This note keeps the categories apart so a low headline is not mistaken for a low all-in cost.

True Trading Cost Calculator

The calculator uses the numbers you type. It does not call a broker, an exchange or a price feed. Flat fees are in the reporting currency. Prices and spreads are in the trading currency. When those currencies differ, you supply the rate. The markup is applied on top of that rate.

Two modes are provided so the spread is counted once. Reference mid-price mode starts from a midpoint and adds half the spread, plus any slippage you enter, on each side. Actual execution price mode uses your buy and sell prices and ignores the spread and slippage fields. Give both modes the same economic prices and they produce the same total.

Explicit and implicit costs

An explicit cost can be checked against a contract note: the commission, a venue fee the broker passes through, a clearing fee, a tax that is itemised, a conversion charge that is shown as its own line. An implicit cost is the difference between a reference price and the price at which the order is filled. It may never appear as a debit.

Adding both is right only when they are different things. If the fill price already includes the spread, adding a spread estimate on top counts the same gap twice. That is why the execution-price mode does not touch the spread field. Ongoing custody and a fund expense ratio are a third group. They belong to the holding period, so the calculator reports a simple holding figure beside the trading total and does not fold it in.

The stacked bars are the same lines as the total. Commission, the spread or the execution gap, slippage, venue and clearing fees, other charges, FX and tax add up to the estimated round trip. A line at zero is omitted from the drawing and remains in the export.

The bid-ask spread: a cost that may not appear on your statement

The bid is the price at which a quote is willing to buy. The ask is the price at which it is willing to sell. The mid-price is the point halfway between them. The full spread is ask minus bid. A buyer who lifts the ask pays about half the spread above the mid. A seller who hits the bid receives about half the spread below the mid. If the midpoint is unchanged, the two halves together are about one full spread per unit.

The worked case below uses that convention: mid 100, spread 0.10, so the ask is 100.05 and the bid is 99.95. One hundred shares bought and sold at those prices give up 10 currency units to the spread. The commission is a separate 4.

Quoted spreads are not a promise about the fill. A displayed quote can be for a small size. An order can rest and be filled inside the spread, or it can pay more when the quote moves. Less liquid names, outside the main session, and fast markets tend to have wider or less stable quotes. A market order and a limit order do not have the same exposure to that movement. This desk does not assume every fill occurs at the quoted bid or ask. The slippage field is there for an extra adverse move you want to assume, and it is used only in mid-price mode.

Why minimum commissions matter more for smaller orders

A flat fee is the same cash amount on a small ticket and a large one, so it is a larger percentage of the small ticket. A percentage fee scales with the notional. A per-share or per-contract fee scales with the quantity, which is not the same thing as the notional when the price changes. A minimum replaces the calculated commission when the calculated amount is lower. A maximum, where a schedule publishes one, caps it. The calculator applies the minimum first and the maximum after that, on each side.

The table under the calculator reprices the same assumptions at 250, 1,000, 5,000, 10,000 and 50,000 currency units of notional. Quantity is that notional divided by the reference price and the multiplier. Raise the minimum above the flat commission and the percentage on the 250 row rises faster than the percentage on the 50,000 row. The 10,000 row reproduces the worked example when the other inputs are still the defaults.

The currency conversion cost of international investing

Four currencies can be in play at once. The account currency is the cash you deposit. The trading currency is the currency of the order. The security’s denomination is the currency of its price. A fund’s base currency is the currency in which the fund accounts for its assets. The listing currency of an ETF is not the currency exposure of the shares, bonds or futures inside it. A sterling-listed fund of US equities still moves with those equities and with the exchange rate between sterling and the dollar, according to the fund’s own hedging policy.

A broker may convert cash on the purchase, again on the sale, or hold a balance in the trading currency so the second conversion never happens. The markup may be a percentage, a minimum, or a rate that already differs from a reference rate you have chosen. This page treats a markup you type as a charge on top of a rate you type. If the rate you typed already contains the margin, leave the markup at zero.

Multi-currency balances can remove a conversion and add a different cost: interest on a debit balance, or a fee for holding the currency. Those are account terms. They are not estimated here unless you type them into the other-fee or holding fields.

How trading costs differ across markets

The same words do not bill the same way in every market. Use the list as a checklist of lines to look for. Leave a line out when the instrument does not have it.

How brokers structure a price

A zero-commission plan collects nothing on the commission line and can still earn from a spread, a conversion, a subscription, interest on cash, or a payment from a venue or a wholesaler. A fixed commission is a cash amount per order. A percentage commission scales with size. Per-share and per-contract schedules scale with quantity. A tiered schedule changes the rate after a volume threshold. A subscription replaces some dealing charges with a periodic fee.

Execution quality is a separate fact from the tariff. The price you receive, the size that was available, and whether an order was internalised or sent to an exchange are disclosed in different documents in different countries. Investor.gov, the SEC, FINRA, the FCA and ESMA publish material on costs and order handling. This note does not assign a payment-for-order-flow or internalisation practice to any named firm. A named practice belongs in the firm’s own disclosure, read on the date you rely on it.

Compare two fee structures

Model A and model B are labels for assumptions you type. They are not firms. The lower figure depends on the size, the spread, the conversion and the fees. The defaults put a 2 commission and a 0.10 spread against a zero commission and a 0.20 spread, so you can see a wider spread outweigh a missing commission. Change the inputs and the ranking can change.

What trading frequency costs over a year

Multiply the modelled round-trip cost by the number of round trips in a month, then by twelve. Add an account or custody fee once for the year. A platform subscription that is billed monthly is twelve times the monthly amount, still once as an account charge, not once per trade.

Why ongoing costs can matter over time

A platform fee, a custody charge, an advisory fee or a fund expense ratio is taken from the balance that would otherwise compound. The gap after many years is the fees themselves plus the growth those fees did not earn. That second part is foregone growth under the return you assumed. It is not a prediction of a market.

Enter the return as gross of the fee when you want the fee applied. If the return you have in mind is already net of the fund expense, say so and the panel will not deduct it again. For a fuller contribution and fee schedule, use the investment fee calculator.

A round trip in numbers

This is a mathematical illustration. It is not a broker’s current tariff, and it is not a live spread.

The reference notional is 10,000, so 16 is 0.16 percent, or 16 basis points. The modelled price move that recovers 16 on 100 shares is 0.16 per share. Both calculator modes open on this case. In execution-price mode the 0.10 spread field is ignored, because 100.05 and 99.95 already contain it.

Common mistakes when comparing brokers

• Reading a zero commission as a zero cost.
• Adding a spread estimate to prices that already include the spread.
• Treating an ETF’s listing currency as the currency of its holdings.
• Charging an annual account fee on every trade.
• Treating accrued interest on a bond as a commission.
• Treating a promotional rate as the permanent schedule.
• Assuming every order is filled at the quoted bid or ask.
• Choosing a firm because one line is lower, without the market, the size and the account services in view.

Questions to ask before choosing a broker

• What is the dealing commission, and is it per side or per round trip?
• Is there a minimum, and is there a maximum?
• What is a normal bid-ask spread for the instruments you actually trade?
• Which exchange, clearing and regulatory charges are passed through?
• What are the FX conversion terms, including any minimum?
• Are custody or inactivity fees charged if you do not trade?
• Is market data billed separately?
• Is there an account or platform subscription?
• What are the financing and borrowing terms if you use them?
• What does a withdrawal or a transfer of assets cost?
• Does the schedule change from one market to another?
• Where does the firm disclose how orders are handled?

A lower commission is one answer on that list. It is not a reason, by itself, to open an account.

Methodology

Commission is a flat amount, a percentage of that side’s execution notional, or a rate times the quantity. The minimum is applied to that result, then a maximum if you enter one. In mid-price mode each side’s spread cost is quantity times half the full spread times the multiplier, converted at your rate. Slippage is the same formula with the slippage you enter, and it is adverse. A round trip at an unchanged mid is one full spread per unit, plus slippage on both sides.

In execution-price mode the implicit cost is the gap from your prices to the midpoint: buy price minus mid, and mid minus sell price, each times quantity, multiplier and the conversion factor. The spread and slippage inputs are not added. Percentage and basis points use the reference notional, which is midpoint times quantity times multiplier, in the reporting currency. Basis points are that cost divided by the reference notional, times 10,000. The break-even move is the round-trip cost divided by quantity times multiplier times the conversion factor, in price units.

Flat and per-unit fees are entered in the reporting currency, so they are not converted again. When the trading currency and the reporting currency differ and the rate is missing, the calculator stops. It does not invent a rate. Costs in two currencies are not added until a rate is present. Account fees in the frequency panel are added once a year. Product ongoing charges stay outside the trading total. Figures are not rounded until they are displayed.

No live broker tariff is stored in this article. Schedules change, spreads move, and a tax depends on the taxpayer and the instrument. The output is an educational estimate from the inputs. It is not a personal recommendation and it is not an offer from any firm. Commercial relationships, where any exist, are described on the commercial disclosure. They do not decide the arithmetic.

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