A commission house is a type of brokerage and much like any other brokerage, it is a firm that buys and sells futures on the stock market on behalf of its clients. However, unlike most brokerages which also buy and sell futures to enrich their own portfolios, as well as for their customer’s accounts, the commission house only engages in transactions on behalf of their customers. For this reason, a commission house is called a commission house because it depends exclusively upon the income from transaction commissions in order to sustain its business.
The range of securities and commodities bought and sold by a commission house are comparable to any other brokerage. Commission houses deal in futures contracts, which is a contract to buy or sell a standardized quantity of a commodity on the futures exchange. A futures contract implies an obligation to the holder to meet the terms of the contract on the settlement date, as opposed to a stock option, which grants the buyer the right, but not the obligation to take over a position previously held by the option’s seller. Because the commission house debits the customer account every time it makes a sale or purchase on behalf of the account, the investor is able to accurately assess the expense of each transaction and plan investment strategies accordingly.
How much the commission house charges in fees will vary from one commission house to another. It may also depend on the laws of the jurisdiction within which the commission house operates. National and local laws may affect the commission charged by a commission house. They may also offer promotional rates in order to attract new clients to the brokerage.
When choosing a brokerage, you might also take a look at commission houses as an option. Many investors find the predictability of commission houses and the straightforward calculation of commissions to be attractive. Compare the commissions with the fees charged by other brokerages and the comparison may be favorable.