Many forex brokers give customers the option between choosing a standard account and a raw spread account. In this article, we’ll break down the differences between these two types of account and help you choose the best account type based on your trading preferences.
Key highlights:
- In no commission accounts, the user isn’t charged with a commission on the trade, but the broker marks up the spread.
- Raw spread accounts offer much tighter spreads but charge a fixed fee per lot.
- No commission accounts are more suitable for beginners and swing traders, while raw spread accounts are better for advanced traders who make a large amount of trades on a daily basis.
Raw spreads vs. no commission accounts
To help you decide whether whether you should choose a raw spread account or a no commission account with your forex broker, let’s first learn the basics of each account type.
No commission (standard) accounts
Standard accounts are commonly advertised as offering “no commission trading”. However, that doesn’t actually mean that trading with that broker is free of charge.
If you’re not getting charged a commission, the broker is making money by charging a spread (the difference between the bid price and the ask price). In other words, they sell the currency to you for less than they bought it, and buy it from you at a lower price than they will sell it for.
Depending on your trading style, a standard trading account can be quite inefficient, and the fees can quickly add up to substantial amounts.
On standard accounts, traders can typically access a variety of markets, ranging from forex to indices and commodities. Standard accounts will typically have higher spreads than their raw spread counterparts, since the spread is how the broker makes money.
No commission accounts tend to have smaller capital requirements, which makes them more suitable for beginners.
Raw spread accounts
Meanwhile, raw spread accounts charge a fixed commission on trades, but has no markup on spreads. When using a raw spread account, traders have access to interbank rates. In raw spread accounts, commissions are typically charged on lots (x amount of fees per 100,000 units of currency traded).
If your trading strategy is primarily based on scalping (short duration trades with the goal of profiting from small price fluctuations), a raw spreads account will likely be a better choice than a standard account. Meanwhile, if you’re more prone to swing trading, a standard account will suffice.
Raw spread accounts tend to have higher capital requirements, which makes them more suitable for advanced traders. You can find a list of brokers that offer raw spread accounts in our list of the best low spread forex brokers.
Raw spread vs no commission accounts – comparison table
Let’s quickly sum up the key differences between raw spread and no commission accounts:
| Raw spread account | No commission account | |
|---|---|---|
| Spreads | Low, variable | Wider, fixed |
| Commissions | Fixed commission per lot | Commission-free |
| Transparency | Higher | Lower |
| Volatile periods | The spread can fluctuate rapidly | Spread remain fixed, but the broker might requote prices often |
| Best for | Advanced traders, scalpers | Beginner traders, swing traders |
Raw spread accounts are typically favored by experienced scalpers and day traders who have a very strong understanding of market dynamics, order types, and the effects of high market volatility. These accounts are best suited for traders that make a large amount of trades (scalping and day trading).
No commission or standard accounts are better suited for beginners, as they are less influenced by volatility fixed spreads (although prices can be requoted often during periods of high volatility). The fixed spreads provided by Standard accounts allow traders to accurately calculate potential losses in the event their trade ends up losing money.
Fixed spreads vs. variable spreads
While we’re on the topic of raw spreads vs. no commission accounts, let’s also quickly explain a related topic – the difference between fixed spreads and variable spreads.
Fixed spreads remain constant regardless of market conditions at any given time. They require less capital, making them a more affordable option for traders with limited funds. Trading with fixed spreads allows for more predictable calculations of transaction costs.
In contrast, variable spreads fluctuate based on market conditions. Spreads typically widen during economic data releases, or when market liquidity decreases. Trading forex with variable spreads offers more transparent pricing, as competition between different liquidity providers tends to result in better pricing.
In general, traders with smaller accounts and less frequent trading activity benefit from fixed-spread pricing. On the other hand, traders with larger accounts who trade frequently during peak market hours, when spreads are at their narrowest, will benefit from variable spreads.
The bottom line
Hopefully, the information provided in this article has helped you choose the best forex account type for you. If you are just getting started in the world of forex trading, standard accounts will most likely be sufficient. Meanwhile, if you make a lot of trades on a daily basis, opening a raw spread account could save you a decent amount of money when it comes to trading fees.
If you’re looking to practice more before putting your strategies to the test with real money at risk, we recommend you check out our selection of the best forex demo trading accounts.
Source: https://coincodex.com/article/45987/raw-spreads-vs-no-commission/