Spread vs Commission: Understanding Trading Costs
Spread and commission are the two main ways brokers charge you to trade. A spread is the difference between the buy and sell price built into every trade, while a commission is a separate, explicit fee per trade. Understanding both is the key to knowing what a trade really costs, because commission-free does not mean cost-free.
Reviewed by Yaniv Barshaf · Fees verified June 2026 · Our methodology
Disclosure: FeesWizard may earn a commission if you open an account through links on this page. This never affects our fee data or rankings — how we make money.
What the spread is
The spread is the gap between the price at which you can buy an asset, the ask, and the price at which you can sell it, the bid. A broker quotes you a slightly worse price than the true market mid-price in both directions, and that margin is its revenue. You pay the spread automatically every time you open and effectively again when you close, without ever seeing a separate charge on your statement. Because it is baked into the price, the spread is easy to overlook, which is exactly why so-called commission-free trading can still be expensive. Wider spreads mean higher hidden costs. Spreads tend to widen on volatile or less liquid assets and during off-market hours, so the same trade can cost more depending on timing and the instrument you choose.
What a commission is
A commission is an explicit, itemised fee the broker charges for executing a trade, shown separately from the market price. It might be a flat amount per trade, for example a set fee whatever the size, or a percentage of the trade value, sometimes with a minimum charge. Because it is transparent, you can see exactly what each trade costs and add it up easily. Brokers that charge commission often offer tighter spreads close to the true market price, so you pay a clear fee instead of a hidden margin. Commission models are common for share dealing and are favoured by investors who want predictable, visible pricing. The trade-off is that a fixed commission can feel expensive on very small trades but becomes proportionally cheap on large ones.
Why commission-free is not free
Marketing that promises commission-free or zero-commission trading can be misleading, because the broker still needs to earn revenue. Instead of an explicit fee, the cost is usually recovered through a wider spread, a currency conversion charge, or other fees, and sometimes by routing your order in ways that give you a slightly worse price. The result is that you pay indirectly rather than transparently. For an occasional small trade the spread cost may be minimal, but for larger or frequent trades a wider spread can easily exceed what a modest commission would have cost. The lesson is to look past the headline and compare the all-in cost, including the spread, before deciding that commission-free is genuinely cheaper. A visible fee is not automatically worse than a hidden one.
A worked example (illustrative)
These figures are illustrative only. Imagine buying £1,000 of a share. Broker A is commission-free but quotes a spread of about 0.5 percent, so the round-trip spread cost is roughly £5 built invisibly into the prices. Broker B charges a flat £3 commission per trade but quotes at the tight market price with a negligible spread; buying and later selling costs £3 plus £3, or £6 in visible commission. On this single £1,000 trade the commission-free option looks marginally cheaper. But scale the trade to £10,000 and the picture flips: Broker A's 0.5 percent spread now costs around £50 each way, while Broker B's flat commission stays at £3 per trade. The larger the trade, the more a flat commission tends to win. Always run the numbers for your typical trade size.
When each model is cheaper
Neither model is universally cheaper; it depends on how you trade. A percentage-based spread scales with trade size, so wide spreads punish large trades, whereas a flat commission stays the same in cash terms and therefore shrinks as a percentage on bigger deals, making commission models attractive for larger trades. Conversely, on frequent small trades a flat commission can dominate the cost, so a low-spread or commission-free route may work out cheaper, provided the spread genuinely is tight. Your trading frequency, average size and the assets you trade all matter. Active traders placing many orders, and long-term investors making occasional large purchases, will often reach opposite conclusions about which structure suits them, so match the pricing model to your own behaviour rather than the headline claim.
Other costs and comparing all-in
Spread and commission are only part of the bill. On top can sit foreign exchange fees when you buy assets in another currency, overnight funding on leveraged products such as CFDs which accrues daily and compounds, platform or account fees, inactivity fees, and withdrawal or transfer charges. Any of these can outweigh the headline trading cost. To compare brokers fairly, add up the all-in cost for your realistic usage: your typical trade size and frequency, the spread or commission, plus every recurring and per-event fee that applies. A broker that looks cheap on one line can be dearer overall once currency conversion or funding costs are included. The right question is never which has lower commission, but which delivers the lowest total cost for the way you actually trade. Capital at risk.
The bottom line
Spread and commission are just two ways of charging for the same thing, and commission-free never means cost-free. Flat commission tends to win on large trades, tight spreads on small frequent ones. Compare the all-in cost, including FX and funding, for your real trading pattern.
Frequently Asked Questions
Is spread or commission cheaper?
It depends on your trade size and frequency. A percentage spread scales up on large trades, so a flat commission is often cheaper for big deals. For frequent small trades, a low spread or commission-free route can win, provided the spread is genuinely tight. Compare the all-in cost.
Does commission-free trading really mean no cost?
No. Commission-free brokers still earn revenue, usually through a wider spread, currency conversion charges or other fees. You pay indirectly rather than through a visible commission. For larger or frequent trades, a wide spread can cost more than a modest commission would have.
How does the spread hide the cost of a trade?
The spread is the gap between the buy and sell price, baked into the quote you receive rather than shown as a separate charge. You pay it automatically on every trade without seeing a line item, which makes it easy to overlook when comparing brokers.
What other fees should I check beyond spread and commission?
Look for foreign exchange fees on overseas assets, overnight funding on leveraged products, platform or account fees, inactivity fees, and withdrawal or transfer charges. Any of these can outweigh the headline trading cost, so always add up the all-in cost for how you actually trade.