What's the difference between markups and "commissions, transaction fees and contract fees" when purchasing individual bonds on the secondary market?

Question

I read on forbes.com:

It can be difficult for investors to know the true cost of individual bonds on the secondary market, as prices frequently include markups. In addition, it’s entirely possible to see the same bond offered by two different dealers at two different prices. You may also be charged commissions, transaction fees and contract fees on your bond-related transactions. [emphasis mine]

What's the difference between markups and "commissions, transaction fees and contract fees" when purchasing individual bonds on the secondary market? I thought it was the same, but I'm not familiar with it.

Answer 1

In general, I'd suggest getting a dictionary.

"markup" is adding amount over the nominal price. For example, you can buy a $10-priced product for $11. $1 is the markup.

"commission" is an amount you pay based on the transaction value.

"transaction fee" is an amount you pay per transaction.

"contract fee" is an amount you pay per contract.

They are all different things, but the end result is that you buy a $10 bond for $11, and it doesn't really matter to you whether the $1 is a markup, a transaction fee, a 10% commission, or a $1 fee per every $10 contract you buy. What matters is how much you end up paying.

However, they are charged by different entities - markups are usually by the sellers, fees and commissions are usually by the brokers. So when you compare prices you need to understand who charges what.