Each Way Commission is a term used in the financial services industry to describe the commission earned by a broker who handles both the purchase and the sale sides of a trade. This type of commission structure incentivizes brokers to manage both aspects of a transaction to maximize their earnings. The concept is prevalent in stock trading, real estate, or any brokerage-based transaction involving a buying and selling process.
Examples
- Stock Trading: A stock broker facilitates the purchase of shares for a client. Later, when the client decides to sell those shares, the same broker handles the sale. The broker earns commissions from both the buying and the selling activities.
- Real Estate: A real estate agent might represent both the buyer and the seller in a property transaction, earning a commission from both parties.
- Commodity Trading: A broker managing the trading of commodities like oil or gold could represent the interests of both the buyer and seller in different parts of the transaction cycle, earning commissions for each service provided.
Frequently Asked Questions
Q: How is each way commission calculated? A: Each way commission is calculated based on a percentage of the transaction amount for both the purchase and the sale sides. The exact rate can vary depending on the broker and the specific agreements in place.
Q: Is each way commission common in all types of brokerage services? A: While each way commissions are common in stock trading and real estate, they are less typical in other services where the buyer and seller are usually represented by different brokers.
Q: Can each way commissions create conflicts of interest? A: Yes, brokers earning each way commissions might face conflicts of interest, particularly if they benefit more by favoring one side of the transaction over the other. Industry regulations often address these potential conflicts to protect clients.
Q: Are there regulatory constraints on each way commission? A: Many jurisdictions have regulatory frameworks to ensure transparency and fairness in transactions where each way commissions are applied. For example, the Financial Industry Regulatory Authority (FINRA) in the U.S. has rules to prevent conflicts of interest.
Related Terms
- Cross Trade: A cross trade is a transaction where a broker or other intermediary executes a buy and a sell order simultaneously for the same security from different accounts. Cross trades can also involve earning commissions from both sides of a trade, similar to each way commissions.
- Dual Agency: In real estate, dual agency occurs when one broker or agent represents both the buyer and the seller in a transaction, potentially earning commissions from both parties.
Online References
- Financial Industry Regulatory Authority (FINRA)
- U.S. Securities and Exchange Commission (SEC)
- National Association of Realtors
Suggested Books for Further Studies
- “The Wall Street Journal Complete Money and Investing Guidebook” by Dave Kansas
- “A Random Walk Down Wall Street” by Burton G. Malkiel
- “Real Estate Principles: A Value Approach” by David C. Ling and Wayne R. Archer
- “Investing For Dummies” by Eric Tyson
Fundamentals of Each Way Commission: Finance and Brokerage Basics Quiz
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