Raw Spread
A raw spread is the unadjusted difference between the bid and ask price of a currency pair or CFD, as quoted directly from interbank liquidity providers, before any broker markup or commission is added.
Quick Definition Box
The raw spread is the pure, underlying cost of a trade that exists in the wholesale interbank market. On raw spread accounts, brokers pass this tight spread directly to the trader but charge a separate commission per lot. This contrasts with standard accounts, where the broker widens the spread to cover costs, and no separate commission is charged.
Detailed Explanation
To understand a raw spread, you must first understand how forex pricing works. When you look at a currency pair like EUR/USD, you see two prices: the bid (the price at which you sell) and the ask (the price at which you buy). The difference between these two is the spread. This spread is the primary cost of executing a trade, alongside any commission.
In the wholesale interbank market, where banks and large financial institutions trade, the spreads are extremely tight—often as low as 0.0 to 0.1 pips on major pairs. This is the "raw" spread. Retail brokers, however, do not have direct access to this market. They aggregate prices from multiple liquidity providers (banks) and offer them to retail traders.
Here is where the distinction arises. A standard account (or "markup" account) takes that raw interbank spread and adds a markup—say, 1.0 to 1.5 pips—to cover the broker's costs and profit. The trader sees a wider spread but pays no separate commission. A raw spread account (often called an ECN or STP account) shows the trader the raw, unmarked-up spread—which can be 0.0 pips on major pairs during liquid sessions. However, the broker charges a fixed commission per lot traded, typically $3.50 to $7.00 per side (round turn).
The key insight is that the total cost of trading is the sum of the spread and the commission. On a raw spread account, the spread is minimal, but the commission is explicit. On a standard account, the spread is wider, but the commission is zero. For a trader, the "raw spread" is the transparent, pre-markup number that reveals the true liquidity cost, while the commission is the broker's service fee.
It is also important to note that raw spreads are not static. They fluctuate based on market volatility, liquidity, and the time of day. During major news releases or low-liquidity periods (like the Asian session close), even raw spreads can widen significantly. The "raw" label refers to the absence of broker markup, not a guarantee of a fixed tight spread.
Real-World Example
Let's compare two accounts on the same currency pair, EUR/USD, during the London session.
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Standard Account: Bid = 1.1050, Ask = 1.1062. The spread is 1.2 pips. You buy 1 lot (100,000 units). Your cost is 1.2 pips × $10 per pip = $12. No commission.
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Raw Spread Account: Bid = 1.1050, Ask = 1.1051. The raw spread is 0.1 pips. You buy 1 lot. Your spread cost is 0.1 pips × $10 per pip = $1. However, the broker charges a commission of $7 per lot per side (buy and sell), so $14 total round turn. Your total cost is $1 + $14 = $15.
In this example, the standard account is cheaper by $3 for this single trade. However, consider a scalper who opens and closes 20 positions per day. On the standard account, the cost is 20 × $12 = $240. On the raw spread account, the cost is 20 × $15 = $300. The standard account is still cheaper here.
But now consider a different scenario: a high-volume trader who holds positions for hours, not seconds. The spread on the standard account might widen to 2.0 pips during volatile news, while the raw spread might only widen to 0.5 pips. The cost comparison shifts. The "raw spread" is not inherently cheaper or more expensive—it is simply a different cost structure. The total cost depends on the current spread, the commission, and your trading frequency.
Why It Matters for Traders
Understanding raw spreads is crucial for calculating your true break-even point and managing trading costs. If you trade on a raw spread account, you must factor in the commission when calculating your profit target. A trade that moves 5 pips in your favor on a raw spread account with a $7 commission per side is not a 5-pip profit; it is a 5-pip move minus the spread (0.1 pips) minus the commission (1.4 pips equivalent at $10 per pip) = roughly 3.5 pips net profit.
For scalpers and high-frequency traders, the raw spread model can be advantageous because the spread is transparent and predictable, and the commission is fixed. This allows for precise cost modeling. For swing traders who hold positions for days, the difference between a 0.1 pip and a 1.2 pip spread is negligible compared to the overnight swap costs, so a standard account might be simpler.
Moreover, raw spreads reveal market conditions. If you see the raw spread on EUR/USD jump from 0.1 to 0.8 pips, it signals a liquidity event or high volatility. This information is hidden on a standard account, where the broker's markup masks the underlying market movement. Being able to see the raw spread gives you a clearer picture of the market's true state.
Common Misconceptions
Misconception 1: "Raw spread means zero cost." False. A raw spread of 0.0 pips still incurs a commission. The total cost is spread + commission. A 0.0 pip spread with a $7 commission per side is more expensive than a 0.5 pip spread with no commission on a standard account for a single trade.
Misconception 2: "Raw spread accounts are always cheaper." Not necessarily. For low-frequency traders or those trading during volatile periods, a standard account with a fixed markup might be more predictable and cheaper. The raw spread model benefits high-frequency traders who can offset the commission with tight spreads over many trades.
Misconception 3: "Raw spread is the same as zero spread." No. "Raw" means no broker markup, but the underlying interbank spread can still be positive (e.g., 0.2 pips) or even negative during extreme liquidity events (rare but possible). "Zero spread" is a promotional feature on some standard accounts, but it usually comes with a higher commission or other conditions.
Related Terms
How XM Compares
XM offers both standard and raw spread account types, allowing traders to choose based on their strategy. On XM's raw spread accounts, the spreads are sourced directly from liquidity providers, and a separate commission is applied per lot. On standard accounts, XM includes the markup in the spread with no commission. The specific commission rates and minimum spreads vary by account type and base currency. XM also highlights that raw spreads can widen during news events or market gaps, which is a normal market condition. Traders should always verify the current spread and commission details on the official XM website, as these figures can change based on market conditions and account specifications. This description is for educational context only and does not constitute a recommendation to choose one account type over another.
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⚠️ This glossary entry is educational. Forex/CFD trading carries high risk. This is not investment advice.
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