No forex trade is free. Forex brokers serve as the gateway to help forex traders access currency pairs and make lightning-fast trades. The two most popular business models are raw spreads and standard accounts. Each account has different fees, and market conditions influence which model is better than the other. This guide will explore key details to consider before choosing a forex brokerage account based on raw spreads vs. a standard account.
What is a Raw Spread Account?
A raw spread account has tight spreads that allow you to access currency pairs at similar rates to interbank market rates. You will have spreads that are very close to 0.0 pips, and zero-spread brokers even offer trades at 0.0 pips. However, raw spread accounts come with commissions for each trade.
The commissions aren’t as bad for high-frequency traders since large orders minimize the commission’s impact on your cost basis. You should review a brokerage firm’s commission and fee schedule before deciding if it’s right for you.
Pros
- Raw spreads are cheaper for high-frequency traders
- You get spreads that are close to interbank rates
- These orders execute within seconds
- You will know the commission fee before making a trade
Cons
- Commissions minimize the profits of long-term investors who don’t make many trades
- Spreads can still expand during market volatility
- You have to review spreads and commissions to determine the true cost of each trade
What is a Standard Account?
Standard accounts do not have any commissions on their trades. Brokerage firms that use this business model put their commission in spreads as a markup. It’s simpler to understand since you don’t have to stay on top of commissions and spreads. However, traders can be hurt by these forex brokerage accounts since the spreads can change quickly, and the costs are less predictable.
Pros
- No commissions on trades
- Small orders are more affordable for low-volume traders
- It’s easier for new traders
Cons
- Trading costs can vary since spreads and markups are more volatile than raw spreads
- Standard accounts have slower trade execution times than raw spread accounts
- Large orders become more expensive since the spread affects every asset you buy
Key Differences: Side-by-Side Comparison Table
These are some of the differences to keep in mind when comparing raw spread accounts and standard accounts.
| Feature | Raw Spread Account | Standard Account |
| Spreads | Near zero | Marked-up spreads |
| Commissions | Yes | No |
| Execution Type | ECN/STP | Market Maker |
| Suitability | Active traders | Beginners |
| Transparency | Higher | Moderate |
| Total Trading Cost | Often lower with volume | Simpler, higher per trade |
When to Choose a Raw Spread Account vs. a Standard Account
The right account depends on how you approach forex trading. There is no one-size-fits-all solution, and you will have to consider your objectives and trading activity.
If you are an active trader or a scalper who places more trades each day than you can remember, a raw spread account is a better choice. You’ll save money by not having to contend with wider forex spreads.
However, if you are a long-term investor who can go for a few weeks without making a trade, a standard account may be the better option. These accounts are also helpful if you place a low number of trades. If you’re just getting started and want a simple forex trading experience, a standard account is beneficial.
How to Evaluate Broker Options
Forex traders and investors can choose from several brokerage accounts. These are some of the details to compare when you are deciding which broker is right for you.
Commission Structure
Each brokerage firm lays out its commission structure. You’ll get to see how much you pay in commissions for each trade and if the commission changes based on your order size. Standard accounts usually don’t have commissions, but they have wider spreads to compensate.
Spread Transparency
Raw spreads offer more transparency since you know the commission going into a trade. Standard accounts may not have as much transparency if the markup fluctuates based on market conditions and other factors. If you work with a brokerage firm that uses the standard account model, check if they have the same markup for each currency pair or if they can adjust the markup based on various factors.
Platform Support
Some brokerage accounts let you seamlessly integrate trading software and tools into your dashboard. Good integration is critical for traders who use various resources to conduct technical analysis and follow currency pair trends. You can also consider options like FOREX.com, which offers built-in trading tools for its customers.
Regulation and Reputation
The most reliable brokers are recognized and approved by numerous regulatory bodies, such as the following:
- Commodity Futures Trading Commission (U.S.)
- National Futures Association (U.S.)
- Financial Conduct Authority (U.K.)
- Australian Securities and Investments Commission (Australia)
- Cyprus Securities and Exchange Commission (Europe)
It’s easier to feel comfortable with a broker if it has a good reputation. You’ll know that your money is safe and can focus on making forex trades instead of wondering if the brokerage firm is financially solvent.
Choosing The Right Forex Trading Account
A good forex trading account can minimize your costs while giving you access to a wide range of currency pairs. Once you have selected a brokerage account, you can then focus your efforts on making good trades and learning more about the forex market. That way, your wins will accumulate as you gain more experience.
Frequently Asked Questions
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Raw spreads are better for high-frequency traders and scalpers. They allow you to get spreads that are close to interbank market rates.
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Spreads reflect a hidden cost of trading. Wider spreads make it more difficult to profit from forex trades.
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Spreads are better for long-term investors and traders who have low trading activity. However, commissions are more suitable for high-frequency traders and scalpers.
