Knowing how brokers actually charge you is one of the quickest ways to tighten up leaking profits. This article will explain, in simple terms, what raw spread, tight spreads, and commission-based pricing mean – how they influence trading costs, what account types work for what strategies (i.e. scalping, day trading, swing trading), and what to look for when choosing a broker.
Key Takeaways
- Spreads and commissions both matter. A tiny quoted spread can be offset by a per-lot commission or hidden fees; compare total trading cost not just the headline spread.
- Raw spread accounts usually offer near-zero spreads with a per-lot commission — great for scalpers if the commission is low and execution is fast.
- Tight spreads (sometimes called “floating” or low-variable spreads) may include no commission but wider spreads during news — good for many day traders who want simplicity.
- Commission-based / zero-spread accounts can equalize costs: a 0-pip offer with a commission can cost the same as a small spread + low commission; always calculate the minimum total fee per trade.
- Check price transparency, execution speed, liquidity and hidden fees (swap/overnight fees, funding options, withdrawal fees) before deciding.
Understanding Broker Spreads
What Are Spreads in Forex and CFD Trading?
A spread is the difference between the buy (ask) and sell (bid) price quoted by the broker. For currency pairs like EUR/USD, it’s often measured in pips (1 pip = 0.0001 for most pairs). When you open a new position you start behind the spread; your price must move in your favor by at least the spread to break even.
Spreads can be fixed (unchanging), floating/variable (market-driven), or presented as raw/ECN where the displayed spread may be tiny but a commission is added.
How Spreads Affect Trading Costs and Profitability
Trading cost = (spread in pips × pip value × lot size) + commission per lot + other fees (swaps, deposit/withdrawal).
For a standard 1 lot EUR/USD trade (100,000 units), pip value ≈ $10 per pip. So 0.8 pips costs ~$8 in spread alone. Add commission per lot (if any) and overnight swaps and you have the total trading cost.
Understanding this total cost is crucial for scalpers and day traders where frequent trades multiply small per-trade costs.
Raw Spread Accounts Explained
What Is a Raw Spread?
A raw spread account (often via ECN/STP) shows near-market spreads — sometimes 0.0–0.3 pips on EUR/USD — because the broker passes live liquidity from providers. Brokers then charge a commission per lot (roundtrip) to monetize that access. Raw spreads prioritize price transparency and tighter bid/ask windows.
Advantages of Raw Spread Accounts
- Very low quoted spreads (close to interbank) — excellent for scalping spreads and high-frequency strategies.
- Price transparency — you see near-market quotes from liquidity providers.
- Potentially lower slippage during normal liquidity because of deeper ECN pools.
- Suitable for high-volume traders and professional strategies that need minimal spread cost.
Disadvantages of Raw Spread Accounts
- Commission per lot increases the explicit cost; you must add it to your spread to compute total trading costs.
- During extreme volatility spreads can still widen or liquidity can dry up.
- Some brokers set minimum total fee thresholds or tiered commission structures (watch for that).
- Not always best for micro accounts with tiny balances if minimum deposit or commission structure makes trades uneconomic.
Tight Spread Accounts Explained
What Are Tight Spreads?
Tight spread accounts advertise consistently low spreads (e.g., 0.6–1.2 pips EUR/USD) and often bundle costs into the spread rather than charging an explicit commission. They may use variable (floating) spreads, widening at news or thin liquidity.
Pros and Cons of Tight Spread Pricing
Pros
- Simplicity: easy to calculate costs—no per-lot commission to add.
- Great for moderate-frequency traders who prefer predictable, bundled pricing.
- Lower minimum deposit offerings in some brokers vs ECN accounts.
Cons
- Wider spreads than raw during normal conditions—you may pay more per trade if you trade very frequently.
- Spread widening during news can spike costs unexpectedly.
- Price transparency isn’t as clear: what looks tight now might widen later.
Ideal Trading Strategies for Tight Spreads
Tight-spread accounts are suited to day traders and swing traders who trade less frequently than scalpers and prefer straightforward pricing without per-lot math.
Commission-Based Pricing Models
How Commission-Based Spreads Work
Some brokers market a zero spread offer (or ZERO Spread Account), showing 0.0 pips but charging a commission per lot. Others advertise a blended approach: very tight fixed spreads + a small commission. The key is: commission-based pricing separates the cost of accessing liquidity (commission) from the market spread.
Advantages of Commission-Based Pricing
- Predictability for very active traders: you know the per-lot cost.
- Zero spread on major pairs removes the spread component, helpful during low-volatility periods.
- Often used with ECN/STP models—execution speed and liquidity access tend to be good.
Drawbacks of Commission-Based Pricing
- Commission adds a fixed baseline so micro or micro-liquidity trades might become uneconomic.
- Commission structures vary (some per side, some roundtrip, some tiered by volume).
- Extra calculations: you must compare the combined spread + commission vs a no-commission tight spread to judge which is cheaper.
Comparing Raw vs Tight vs Commission-Based Spreads
Trading Costs and Hidden Fees Analysis
A practical example (EUR/USD, 1 standard lot, pip value = $10):
- Raw Spread: 0.1 pip + $7 commission (roundtrip) → spread cost = $1 + commission $7 → Total = $8.
- Tight Spread: 0.8 pip, no commission → spread cost = 0.8 × $10 = $8.
- Commission-Based / Zero Spread: 0.0 pip + $8 commission → Total = $8.
(Example demonstrates parity: different structures can yield the same total cost. Always compute spread + per lot commission + swap/overnight fees + hidden fees.)
Hidden fees to watch: swap/overnight fees, withdrawal fees, deposit fees, currency conversion fees, inactivity fees. These can change long-term profitability more than the spread model.
Execution Speed and Liquidity Considerations
- Raw / ECN: usually the best execution speed and deepest liquidity pools, which reduces slippage and favors scalpers.
- Tight (market maker / hybrid): decent execution for many traders but may be subject to re-quotes or wider slippage in fast markets.
- Zero-spread with commission: can offer ECN-like execution, but check latency and liquidity sources.
Best Spread Type for Scalpers, Day Traders, and Swing Traders
- Scalpers: prefer raw spread or commission-based zero spread (if commissions are low). They need minimal spread and fast execution.
- Day Traders: often do well with tight spread accounts—simplicity and moderate spreads work if trading frequency isn’t extreme.
- Swing Traders: spreads are a smaller portion of cost for longer holds; account types with lower overnight swap rates and good funding options matter more than tiny spread differences.
Comparison Table of Spread Models
| Model | Typical EUR/USD Spread | Commission Per Lot (roundtrip) | Best For | Pros | Cons | Sample 1-Lot Cost (EUR/USD) |
| Raw Spread (ECN/STP) | 0.0–0.3 pips | $6–$8 | Scalpers, high-volume traders | Very low spreads, price transparency | Commission + possible min fee | $8 (0.1pips+$7) |
| Tight Spread (No commission) | 0.6–1.5 pips | $0 | Day traders, simplicity seekers | Simple pricing, no per-lot math | Wider spreads during news | $8 (0.8pips) |
| Commission-Based / Zero | 0.0 pips | $6–$10 | Professional traders, scalpers | Zero spread offers, predictable commission | Explicit commission, complexity | $8 (0pips+$8) |
(Numbers are illustrative; always confirm current spreads, per lot commission, pip value, and swap rates with the broker.)
Choosing the Right Broker and Account Type
Key Factors When Selecting a Broker
- Total cost per trade (spread + commission + swaps) — not just advertised spreads.
- Execution speed and slippage statistics — ask for execution reports.
- Liquidity providers & ECN/STP model — more reputable LPs usually mean better fills.
- Price transparency — availability of level-2 data, tick history.
- Account types and fee structure — standard account vs raw vs zero spread.
- Minimum deposit and funding options (cards, bank transfer, e-wallet) — these affect your capital efficiency.
Broker Regulation and Trustworthiness
Choose brokers regulated by reputable authorities (FCA, ASIC, CySEC, etc.) — regulation reduces counterparty risk. Check withdrawal speed, customer reviews, and sample trade execution reports. Reputation matters when you’re moving significant capital.
Account Funding, Minimum Deposits, and Withdrawal Options
- Minimum deposit can vary widely: some ECN accounts require higher minimums.
- Funding options and fees influence long-term costs (currency conversion, deposit/withdrawal charges).
- Check swap/overnight fees if you hold positions overnight — these can beat tight spreads when trading longer-term.
Advanced Tips for Minimizing Trading Costs
Spread Monitoring and Market Volatility
- Use spread monitoring tools or tick charts to watch dealer behavior around major releases.
- Avoid opening/closing large positions at market open or during high-impact news when spreads often widen.
Using ECN and STP Brokers for Better Pricing
- ECN/STP models generally offer tighter raw spreads and better liquidity — but verify commission per lot and check for minimum total fee or monthly minimums.
- For high-frequency traders, volume-based commission tiers can reduce per-lot cost as you scale.
Risk Management with Different Spread Models
- For scalpers, set realistic stop-loss sizes that account for spread and potential slippage.
- Use position sizing to ensure the minimum total fee doesn’t make small trades uneconomic.
- Test on a demo account or with micro lots to confirm execution speed, slippage, and true trading costs.
Final Thoughts: Which Spread Type Suits You Best?
There’s no universal “best” — there’s the best for your strategy and account balance. Scalpers and algorithmic traders will generally prefer raw spreads or commission-based zero spread accounts if execution speed, liquidity, and low per-lot commission are present. Day traders who place fewer trades may appreciate the simplicity of tight, no-commission accounts. Swing traders should focus less on pips and more on swap costs, funding options, and broker reliability.
Practical next steps: calculate your average cost per trade (spread × pip value + commission + expected swap) for the pairs you trade. Compare that number across the broker account types you’re considering. Don’t forget to include hidden fees — they’re where profits vanish slowly but surely.