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What is a Commission House?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 December 2016
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    2003-2016
    Conjecture Corporation
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Commission houses are firms that focus on the purchase and sale of investment contracts for the individual accounts of their customers. In exchange for this service, the house charges a fee on each transaction that is known as a commission. This is slightly different from a general brokerage, in that the commission house engages in transactions related only to customer accounts; many brokerages also buy and sell contracts for their own account as well as for the accounts of their clients.

In general, a commission house usually does not engage in building an in house portfolio for the business, so the firm depends on commission income from the transactions it performs. The most common approach is to debit a customer account each time that the commission house makes a purchase or sale that is relevant to that account. This method allows the investor to be able to assess the amount of expense in each transaction and plan investment strategies accordingly.

The exact process for determining the amount of the fee charged by the commission house will vary from one jurisdiction to another. Factors such as local and national laws regarding financial transactions will come into play. Within the context of complying with government regulations, a commission house may also choose to offer competitive rates in order to attract new clients.

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The range of commodities and securities that are bought and sold by a commission house run the same range as any other brokerage. A commission house will engage in the buying and selling of stocks and bonds, as well as trading in various commodities. There are a number of brokerages of this type that specialize in futures contracts, called futures commission merchants (FCMs).

Investors may find that dealing with a commission house is a good option for them. The straightforward calculation of the commission is often attractive, and will often compare favorably with the fees that are charged by other brokerages. At the same time, a commission house normally offers access to the same types of investment opportunities found with other brokers.

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