Raw spread account is known to offer better pricing, but is it worth the commission being charged on every position opened?
The forex industry has significantly evolved over the years. With no online presence some decades ago, it is now the largest placeholder in the financial world. And with this growing popularity comes new features and tools in order to cater to the new audience. Even opening a trading account comes with so many options to choose from.
One of the options is a raw spread account. With many different account options in the market, we should properly analyze a raw spread account before deciding if it's the right fit for us or if we should move on to another. Below we will go through a detailed analysis of a raw spread account in order to better understand if it's worth it.
What is Raw Spread Account
A raw spread account is an account that offers low or zero spreads. What this means is that there will be no difference between the market price of a currency pair and the price being offered by the broker. With a raw spread account, the price at which you place a position will be almost exactly the same as the market price being offered at that time. This type of account is also commonly referred to as an ECN (Electronic Communications Network) account.
It is popular among professional traders who prefer to trade at exact market rates for more accurate execution. Normally, the spread or difference in price would be the way the broker earns a profit on each deal you make. However, with a raw spread account, they can only earn through each of your positions through their fixed commission percentage.
Example of Raw Spread Deal
Let's look at an example of a raw spread deal in order to better understand how it works. Say you want to buy GBP/USD at its current rate of 1.5300. With a raw spread account, if you place an order, you'll probably be able to buy it at exactly 1.5300 or somewhere really close. This would therefore give you a head start in earning a decent profit. With a standard account, if you place a buy order for GBP/USD when the market rate is 1.5300, you would have actually bought it for somewhere a bit higher like 1.5305. This would place you at a disadvantage as you would've entered the deal with a 5-pip difference from your initial entry target.
Differences Between Raw Spread and Standard Account
In order to justify choosing a raw spread account, we need to compare it to a standard account to know what we probably would've missed out on or lucked out of. Below are the top differences between raw spread and standard account:
In a raw spread account, there is little to no spread in the market price for each currency pair. This does differ with each broker as some brokers will offer no spread at all while others would offer very minimal spread for the same currency pair. In a standard account, however, there is a noticeable amount of spread for each currency pair. This places standard account users at a slight disadvantage on each position they take.
In a raw spread account, there is a modest amount of commission that is charged on each position. Since the broker won't be able to make much of a profit through the minimal spreads, they instead charge their clients a fixed percentage commission for each position. In a standard account, however, there is no commission charged on each position as the broker is already earning through the spread in market prices. Still, this varies as some brokers could still charge commissions on standard accounts even though they already charge their clients with spreads.
Automated Trading Compatibility
A trading robot or EA is a software that analyzes the market and places positions automatically. This would be unsuitable if you were to use it on a standard account as the rate it would execute the deal would be significantly different from the one it would've thought it set. On the other hand, a raw spread account would optimize its performance by ensuring that the orders are executed at the exact price. Still, it is recommended to verify with the EA's developer so you can be sure which account type it's best applied to.
Benefits of Raw Spread Account
So far, I think it is safe to say having a raw spread account isn't such a bad idea. In fact, it can actually be quite beneficial for the right trader. Below we have curated some of the top benefits, in our opinion, of a raw spread account:
- Almost no spread in market prices, therefore, giving more accurate results.
- More compatible for trading with EA.
- Better chance of earning a higher profit.
See Also: The Best Raw Spread Forex Brokers
Risks of Raw Spread Account
Although we can all agree there are some really good benefits from a raw spread account, we can't ignore some obvious risks or disadvantages that follow a raw spread account. Below we have listed some disadvantages:
- Being charged a commission on each position.
- The EA could prove to be very unsuccessful if not suitable for a raw spread account.
- Could trigger overconfidence.
So, Is It Worth It?
There is no clear-cut answer to this question. Everyone has a different trading technique so it may suit some traders but may not be right for some others. We went through everything that was needed to know about the raw spread account and there is nothing that should be unclear about it at this moment. Personally speaking, I think the pros outweigh the cons by a lot and therefore it is absolutely worth having a raw spread account. We recommend analyzing how both accounts work practically before making your final decision, preferably in their demo versions.