Raw Spread or Standard Account for FX Traders? Trading has its fair share of jargon, and even deciding which trading account to use can be confusing. Forex brokers offer various types of trading accounts, but two popular options are raw spread and standard accounts. As beginners transition from demo accounts to live trading, they often face the crucial question: which is better, raw spread or standard trading account?
Raw Spread vs Standard Account Comparison:
A raw spread trading account, also known as an ECN account, provides real market prices for all instruments. Forex brokers do not add mark-ups to asset prices, resulting in extremely low or even zero spreads. However, traders need to pay higher commission fees for each trade executed. Some brokers charge fees for each opening and closing trade ("per side"), while others charge fees after one full round-turn.
On the other hand, a standard trading account offers asset prices that include a certain mark-up by the broker. Spreads are generally higher, but commission fees for each trade tend to be cheaper or even free.
For instance, let's consider buying the EUR/USD pair, currently traded at 1.2100. With a raw spread account, you could potentially buy it at 1.2100. As soon as the price rises, you can close the position with a significant profit (ensuring it offsets the commission fee as well).
In contrast, a standard trading account may offer a buy price of 1.2102 for the same pair. This means you would immediately incur a loss of 2 pips upon entering the trade due to the spread. To close the trade in a profitable state, the EUR/USD would need to rise by at least 3 pips. However, your profit would always be 2 pips less than it could have been.
So, Which One is Better?
The preference for raw spread or standard trading accounts depends on individual trading styles. Scalpers who profit from minor changes in asset prices may find raw spread accounts more suitable. Conversely, swing traders or position traders might benefit more from standard trading accounts. Longer-term strategies provide more flexibility in choosing trading accounts, as they are not as dependent on the most accurate pricing, unlike short-term strategies.
To determine which option incurs lower costs for your trading strategies, compare the spread and commission fees charged by your chosen broker.
For example, Vantage, an Australian-licensed forex broker, offers a Raw Spread Trading Account with spreads starting from 0 pip and commission fees of $3.0 per standard lot. Fpmarkets, another Australian forex broker, provides both raw spread (known as "Raw Account") and Standard Account options for retail traders.
Both raw spread and standard trading accounts have their own advantages and disadvantages. The choice between them depends on individual traders' needs and preferences.
Raw spread accounts generally offer tighter spreads, potentially reducing trading costs. However, they may charge commissions that offset the savings from lower spreads.
Standard trading accounts typically have wider spreads but do not charge commission fees. This makes them more suitable for traders who make fewer trades or trade in smaller volumes.
Overall, raw spread accounts are better suited for active traders who frequently make trades and prioritize lower spreads over commission fees. Standard trading accounts are better suited for less active traders or those who trade in smaller volumes and prefer to avoid commission fees.
Ultimately, the decision between a raw spread and standard account depends on your trading style and goals. Consider your preferences, trading frequency, and cost-effectiveness to make the right choice for your forex trading journey.