Many traders are attracted to raw spread accounts because they typically offer lower spreads compared to standard accounts, making them appealing for active traders, particularly those who engage in scalping or day trading. The raw spread refers to the actual market spread, which is usually the best available price at a given moment, with no markup added by the broker. However, while raw spread accounts have clear advantages, they may not always be the best choice for every trader. It’s essential to understand how they work and to consider whether they align with your trading style and goals.

What Are Raw Spread Accounts?

In a raw spread account, brokers pass on the actual market spread directly to traders, typically without any additional markup. This means that the spreads you see in your trading platform are the same spreads offered by liquidity providers (e.g., banks, institutional investors) to the broker. While the broker does not add a markup to the spread, they may charge a commission on each trade.

Advantages of Raw Spread Accounts

1. Tight Spreads

• The most significant advantage of a raw spread account is the tightness of the spreads. Because the broker is offering the market spread, the spreads are often much narrower than those seen in standard accounts, which can result in lower transaction costs.
• Tight spreads are particularly beneficial for scalpers, day traders, and other traders who make frequent trades. Small price movements can have a more significant impact on overall profitability when spreads are tight.

2. Transparent Pricing

• With raw spread accounts, you receive more transparent pricing. Since the broker is passing on the market price without adding a markup, there’s less ambiguity about the true cost of trading.
• Traders can see the real-time market price and know that the spread is based on actual liquidity conditions, rather than an artificial increase imposed by the broker. This can lead to a better understanding of market conditions and price action.

3. Better for High-Frequency Trading

• Raw spread accounts are ideal for traders who employ high-frequency strategies, such as scalping. In scalping, traders aim to profit from small price movements over a short period, and the cost of each trade (i.e., the spread) needs to be as low as possible.
• Raw spreads are especially advantageous because they offer the ability to execute more trades at lower costs, enabling traders to take advantage of small market moves.

4. Suitable for Active Traders

• Active traders, such as those who engage in intraday trading or short-term trading, benefit from raw spreads because they are often looking for small profit margins on each trade. Tight spreads can make a significant difference in maximizing profits.

Drawbacks of Raw Spread Accounts

1. Commissions

• One of the key trade-offs with raw spread accounts is that brokers typically charge a commission on each trade. While the spreads may be narrower, the commission can offset the savings from the tight spreads, especially if you are an active trader.
• The commission is often charged per lot or based on the volume of your trades. Depending on the broker, commissions can vary significantly and may even be higher than the total cost of trading with a standard account that includes a wider spread but no commission.

2. Not Ideal for Infrequent Traders

• Raw spread accounts are generally best suited for active traders who trade frequently. If you are a long-term investor or someone who doesn’t trade often, the commission charges might outweigh the benefits of the narrower spreads.
• For traders with less frequent trading activity, standard accounts may be more cost-effective since they typically do not charge commissions and instead have a wider spread.

3. Potential for Higher Costs in Volatile Markets

• During high-volatility periods (e.g., during news releases or market events), the spreads in raw spread accounts can widen dramatically due to fluctuations in liquidity. While raw spreads are typically narrow under normal conditions, they can increase during volatile times.
• Additionally, if the broker’s commission structure is based on lot size or trade volume, these costs can increase during volatile periods, leading to higher overall trading costs.

4. Complex for New Traders

• For new traders, the concept of commissions and raw spreads can be confusing. Standard accounts, which typically include a markup on the spread rather than a commission, may be easier for beginners to understand because the total cost per trade is more straightforward.
• Raw spread accounts often require traders to calculate the combined spread and commission costs to determine the true cost of each trade, which can be overwhelming for those who are new to trading.

5. Liquidity Limitations

• While raw spread accounts provide access to market spreads, the liquidity available for execution may vary. Some brokers may have lower liquidity pools during certain market conditions, which could lead to slippage or delayed execution. In contrast, brokers offering standard accounts with a slight markup may have more stable execution during periods of low liquidity.

When Raw Spread Accounts Are Ideal

• Scalpers: Traders looking for the tightest spreads to profit from small price movements benefit the most from raw spread accounts. Scalping strategies rely on low spreads to reduce the transaction costs of each trade.
• Day Traders: Active day traders who make multiple trades throughout the day will benefit from narrow spreads that reduce overall trading costs, especially if the commissions are low or well-calculated.
• High-Volume Traders: Traders who trade in high volumes (e.g., institutional traders) or use algorithmic trading strategies tend to prefer raw spread accounts because of the low cost per trade. However, the total commission should also be evaluated to ensure that it’s not eroding the benefits of tight spreads.

When Raw Spread Accounts Might Not Be the Best Choice

• Infrequent Traders: If you don’t trade frequently and prefer holding positions for a longer period, raw spread accounts might not be ideal. The commission charges can add up over time, especially if you aren’t actively trading.
• New Traders: For beginner traders, raw spread accounts might be more complex due to the commission structure and the need to calculate the total cost of trading. A standard account with no commission might be more straightforward and easier to manage.
• Long-Term Investors: Investors who are not concerned with daily price movements and prefer to hold long-term positions may not benefit as much from tight spreads, as the overall cost savings will be minimal compared to the commission fees.

Conclusion

While raw spread accounts can be advantageous for active traders, especially those involved in scalping or day trading, they are not always the best choice for every trader. The tight spreads can reduce trading costs, but the commissions can offset those savings, and the accounts may not be ideal for infrequent traders or long-term investors.

Ultimately, whether a raw spread account is the best choice depends on your trading style, frequency of trades, and risk tolerance. If you’re an active trader focused on short-term strategies, a raw spread account might provide the most cost-effective solution. However, if you are a new trader or someone who trades less frequently, a standard account may offer better value and simplicity.

To learn more about the advantages and costs of raw spread accounts, explore our Forex Broker Reviews to compare different broker offerings and find the right account for your trading strategy.