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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Commissions

Definition:

You didn't think that stockbrokers worked out of the goodness of their hearts, did you?

Yachts and fancy cars don't pay for themselves, you know.

Rather than being paid a salary like any Joe Schmo, stockbrokers are paid commissions, which means they are paid a small percentage of every trade they make. It can really add up, especially if someone uses unethical or illegal activities to trade more.

Commissions are really the lifeblood of stockbrokers. What gets commissions and how it gets commissions is an R-rated story (see wrap account; churning; sell-side analyst). But one key theme is that commission rates have come down. There's a lot more shares trade today versus 30 years ago, but commission rates are a fraction (we're talking 0.5–3%) of what they were in 1980.