Five Percent Rule
Also called the “FINRA 5% markup policy,” the five percent rule requires brokers to be fair and ethical when charging for over-the-counter trades. And in this case, a “fair and ethical” commission charge is seen as one that is no more than 5% on standard trades.
We should note here that, much like the Pirate’s Code in everyone’s favorite Johnny Depp movies, the five percent rule is really more of a guideline than an actual rule. Why? Because it does not apply to every trade ever… but it does apply to a lot of ‘em. Specifically, it applies to agency or broker transactions, principal transactions, proceeds transactions, and riskless or simultaneous transactions. Even within those categories, however, there are exceptions. If we know that our broker has a minimum trade fee of $20, then we’re gonna end up paying $20, even if that exceeds 5% of the total trade amount.
Arrr, mateys...sounds like it’s a good time to make sure we’re not being swashbuckled into paying too much for our own broker fees.
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Finance: What is commission?112 Views
finance a la shmoop. what is commission? well it's the greatest motivator for
salespeople in the world. it's the money some people make above and beyond their [ commission explained on a large screen]
salary. a little monetary carrot dangling out in front of a salesperson to you
know encourage them to sell sell sell. alright you're an agent who just sold a
house good for you. you get a 3% Commission. the house went for a million
bucks well you get 30 grand for the privilege or at least your brokerage
does, and then you get some piece of that. ok now you're the stock broker who sold
3 million shares of stock. well good for you
you get four cents a share in Commission 120 grand in the pocket of your
brokerage and you get some piece of that Commission. you're the Hollywood agent[equation]
who just inked Brad pitiful into a movie deal worth 20 million bucks, well good
for you your agency gets a 10% commission or two
million dollars. yeah that's for a Dewey Cheatham and Howe agency best one in
Hollywood. yeah they rep Harvey Weinstein. now for someone who's attempting to sell
a polished version of that Harvey Weinstein story well that's a commission
impossible. [man frowns]