Commission is a fee you pay to a broker or financial service provider for executing a transaction. It is a form of cost charged when buying or selling investments. Commission can be a fixed amount or a percentage of the transaction value.
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Commission directly reduces your net return on an investment.
When you buy or sell a share, the broker executes the order on the exchange. Commission is charged for this service. The more frequently you trade, the more often you pay these costs. That is why it is important to take transaction costs into account when investing. Even small amounts can affect your total return over the long term.
Short example:
Suppose you buy shares for €1,000 and your broker charges €5 in commission. Your total investment is then €1,005.
If you later sell the shares for €1,100 and again pay €5 in commission, you receive €1,095.
Your profit is €90 instead of €100, because you have paid a total of €10 in commission.
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