Main differences between raw spread trading account and standard trading account lie in trading costs, namely spread and commission fees.
Many forex brokers nowadays provide several types of trading account. Two of the most popular offerings are raw spread trading account and standard trading account.
Actually, each forex broker may establish different terms and conditions for their trading accounts. This makes it difficult to decide which type of account is better without knowing in which broker you are going to open the accounts.
However, if you're a scalper, a raw spread account might be better. If you're a swing trader or position trader, then standard account might be recommended. Still, we could compare general circumstances of raw spread vs standard account apart from those specific terms.
Raw Spread vs Standard Account Comparison
Take a look at the following table to simplify your understanding of the raw spread and standard account types:
|Raw Spread Account||Standard Account|
|Asset prices||Real market prices||Already added the broker's markup fees|
|Spread||Extremely low or even zero||Usually higher|
|Commission||Commissions tend to be high||Cheaper to zero commissions|
You can see from the table above, raw spread trading account, also often called an ECN account, offers real market prices for all instruments. Forex brokers will not add any markup on asset prices, so spreads usually are extremely low or even zero.
However, traders have to pay a higher commission fee for each trade executed. Some forex brokers charge the fees for each opening and closing trade ("per side"), while some others may charge fees after one full round-turn.
A standard trading account offers asset prices that have been added a certain amount of markup by the broker. Spreads are usually higher, while commission fee for each trade will be cheaper or even free.
For example, let's assume you want to buy the EUR/USD which is currently traded at 1.2100. If you have a raw spread account, you will probably be able to buy it at 1.2100.
As soon as the price rises to any level, you can close the position with considerable profit (although you have to make sure the gain will offset the commission fee as well).
If you have a standard trading account, you probably could only buy it at an ask price of 1.2102. It means you are going to incur a loss of 2 pips as soon as you entered the trade.
This is what everybody calls a spread. In order to close the trade in the green, EUR/USD has to rise at least 3 pips. Even so, your profit will always be 2 pips less than what it should be.
Spreads calculation is usually automated so you don't have to count it every single time you open a trade.
Raw Spread and Standard Account in Brokers
You can compare both spread and commission fees that are charged by your chosen broker to make sure which one will incur lower costs for your trading strategies.
For example, IC Markets, a pioneer who popularized the term "raw spread" throughout the world. The Australian-licensed forex broker provides Raw Spread Trading Account with spreads starting from 0 pip and commission fees of $3.0 per standard lot.
IC Markets also offers Standard Trading Account with zero commission and spread starting from 1.0 pip. Both could be opened with a starting deposit as low as USD200.
Its fellow Australian forex broker, Pepperstone, also offers both raw spread (under the name "Razor Account") and Standard Account for retail traders.
Pepperstone's Razor Account provides institutional grade spreads without markup (average EUR/USD spread at 0.0 - 0.3 pips) and commission starting from $7 for each 100k traded per round turn.
While Standard Account charges spread around 1.0 - 1.3 pips and zero commission fees.
So, Which One Do You Think is Better?
Every trader may have a different opinion in accordance with their own trading style. If you are a scalper and need to profit from minor changes in asset prices, the raw spread trading account might be more suitable.
But if you are a swing trader or position trader, the standard trading account might be more advantageous. Actually, applying a longer-term strategy can give you more freedom in choosing trading accounts; you're not bound to pick the one with the most accurate pricing, unlike short-term strategies which highly depend on it.