10 minute read
Raw Spread vs Standard Account Which is Better for Forex Trading?
from Exness
by Exness Blog
When diving into the world of forex trading, one of the first decisions you’ll face is choosing the right trading account. Among the most popular options are Raw Spread accounts vs Standard accounts. Each comes with its own set of features, benefits, and drawbacks, making the choice critical for your trading success. But which one is better? In this comprehensive guide, we’ll break down the differences between Raw Spread vs Standard accounts, helping you decide which aligns with your trading goals, experience level, and budget.
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Whether you’re a beginner or a seasoned trader, understanding these account types can your trading strategy and maximize your profits. Let’s explore the ins and outs of Raw Spread vs Standard accounts, compare their key features, and determine which one suits you best.
What is a Raw Spread Account?
A Raw Spread account, often referred to as an ECN (Electronic Communication Network) account, offers traders direct access to the interbank market. This means you get the raw, unfiltered spreads provided by liquidity providers, such as banks and financial institutions, without any markup from the broker.
Key Features of Raw Spread Accounts
· Ultra-Low Spreads: Raw Spread accounts typically offer spreads starting from 0.0 pips, especially on major currency pairs like EUR/USD.
· Commission-Based: Instead of a markup on spreads, brokers charge a fixed commission per trade (e.g., $3–$7 per lot).
· Transparency: Prices come directly from liquidity providers, ensuring minimal broker interference.
· Fast Execution: ECN technology ensures rapid trade execution, ideal for scalpers and high-frequency traders.
· Market Depth: Some Raw Spread accounts provide access to market depth, showing the order book and available liquidity.
Who Should Choose a Raw Spread Account?
Raw Spread accounts are ideal for:
· Scalpers: Traders who execute multiple trades in a short time benefit from low spreads and fast execution.
· Day Traders: Those who open and close positions within a single day appreciate the cost savings on spreads.
· Experienced Traders: Advanced traders who understand market dynamics and can handle commission-based pricing often prefer Raw Spread accounts.
· High-Volume Traders: If you trade large volumes, the low spreads can significantly reduce trading costs over time.
What is a Standard Account?
A Standard account is the most common account type offered by forex brokers, designed to cater to a wide range of traders, especially beginners. Unlike Raw Spread accounts, Standard accounts include a markup on the spread, meaning the broker adds a small fee to the raw interbank spread.
Key Features of Standard Accounts
· No Commissions: Standard accounts typically don’t charge a separate commission, as the broker’s fees are built into the spread.
· Wider Spreads: Spreads are higher than Raw Spread accounts, often starting at 1.0–2.0 pips for major pairs.
· Simplicity: Ideal for beginners who want straightforward pricing without worrying about commission calculations.
· Accessibility: Standard accounts often have lower minimum deposit requirements, making them beginner-friendly.
· All-in-One Costs: The spread includes all trading costs, simplifying budgeting for new traders.
Who Should Choose a Standard Account?
Standard accounts are best suited for:
· Beginners: New traders who want a simple, commission-free structure to focus on learning the market.
· Low-Volume Traders: If you trade infrequently or with smaller lot sizes, the lack of commissions can be more cost-effective.
· Swing Traders: Those who hold positions for days or weeks may not prioritize ultra-tight spreads, as trading costs are spread over longer periods.
· Risk-Averse Traders: Standard accounts often come with fewer complexities, making them suitable for cautious traders.
Raw Spread vs Standard Account: A Head-to-Head Comparison
To help you decide which account type is better for your trading style, let’s compare Raw Spread vs Standard accounts across key factors.
1. Spreads and Costs
· Raw Spread Accounts: Offer spreads as low as 0.0 pips, but you’ll pay a commission per trade. For example, if the commission is $6 per lot and the spread is 0.2 pips, the total cost for a trade might be lower than a Standard account for high-volume traders.
· Standard Accounts: Spreads are wider (e.g., 1.5 pips on EUR/USD), but there are no additional commissions. This makes trading costs predictable but potentially higher for frequent traders.
Winner: Raw Spread accounts are generally cheaper for high-frequency or large-volume traders, while Standard accounts may be more cost-effective for low-volume or beginner traders.
2. Trading Style Compatibility
· Raw Spread Accounts: Perfect for scalping and day trading due to low spreads and fast execution. The commission structure rewards traders who execute many trades daily.
· Standard Accounts: Better for swing trading or long-term strategies, where wider spreads have less impact on overall profitability.
Winner: Depends on your trading style. Scalpers and day traders lean toward Raw Spread accounts, while swing traders and beginners prefer Standard accounts.
3. Transparency and Execution
· Raw Spread Accounts: ECN-based accounts provide direct market access, ensuring transparent pricing and minimal broker interference. Execution is typically faster, reducing slippage.
· Standard Accounts: Brokers may act as market makers, which can lead to slower execution or potential conflicts of interest. However, reputable brokers minimize these issues.
Winner: Raw Spread accounts take the lead for transparency and execution speed, especially for advanced traders.
4. Complexity and Ease of Use
· Raw Spread Accounts: The commission-based structure can be confusing for beginners, requiring a deeper understanding of trading costs.
· Standard Accounts: The all-in-one spread pricing is simpler, making it easier for new traders to calculate costs and manage their budget.
Winner: Standard accounts are more beginner-friendly due to their simplicity.
5. Minimum Deposit and Accessibility
· Raw Spread Accounts: Often require higher minimum deposits (e.g., $200–$1000), as they cater to experienced or high-volume traders.
· Standard Accounts: Typically have lower minimum deposits (e.g., $10–$100), making them accessible to a broader audience.
Winner: Standard accounts are more accessible for traders with limited capital.
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Pros and Cons of Raw Spread Accounts
Pros
· Lower Overall Costs for Active Traders: Tight spreads reduce costs for high-frequency trading.
· Transparency: Direct market access ensures fair pricing.
· Fast Execution: Ideal for strategies requiring quick trade entries and exits.
· Scalping-Friendly: Perfect for traders who thrive on small, frequent profits.
Cons
· Commissions Add Up: For low-volume traders, commissions can outweigh spread savings.
· Higher Minimum Deposits: May exclude beginners with limited funds.
· Complexity: Requires understanding of both spreads and commissions.
Pros and Cons of Standard Accounts
Pros
· No Commissions: Simplifies cost calculations for new traders.
· Beginner-Friendly: Lower entry barriers and straightforward pricing.
· Flexible for Multiple Strategies: Suitable for swing trading and long-term positions.
· Low Minimum Deposits: Accessible to traders with smaller budgets.
Cons
· Higher Spreads: Can increase costs for frequent traders.
· Potential for Slower Execution: Market maker brokers may introduce delays.
· Less Transparency: Spread markups may obscure true market pricing.
How to Choose the Right Account for You
Choosing between a Raw Spread vs a Standard account depends on several factors, including your trading style, experience level, budget, and goals. Here’s a step-by-step guide to help you decide:
1. Assess Your Trading Style
· Scalping or Day Trading: If you trade frequently or aim for small, quick profits, a Raw Spread account is likely better due to its low spreads and fast execution.
· Swing or Position Trading: If you hold trades for days or weeks, a Standard account’s wider spreads won’t impact your profitability as much.
2. Evaluate Your Experience Level
· Beginners: Standard accounts are easier to manage, with no commissions to calculate and lower minimum deposits.
· Experienced Traders: Raw Spread accounts offer the transparency and cost efficiency that seasoned traders value.
3. Consider Your Trading Volume
· High-Volume Traders: If you trade multiple lots daily, Raw Spread accounts can save you money due to tighter spreads.
· Low-Volume Traders: For occasional trades or smaller lot sizes, Standard accounts may be more cost-effective.
4. Check Your Budget
· Limited Capital: Standard accounts typically require lower deposits, making them ideal for traders starting with small accounts.
· Larger Capital: If you can afford a higher minimum deposit, Raw Spread accounts offer better value for active trading.
5. Test with a Demo Account
Most brokers offer demo accounts for both Raw Spread vs Standard accounts. Practice with a demo to compare spreads, commissions, and execution speeds before committing real funds.
Real-World Example: Cost Comparison
Let’s break down the costs of trading 1 lot (100,000 units) of EUR/USD on both account types.
· Raw Spread Account:
· Spread: 0.2 pips = $2 (assuming 1 pip = $10 for EUR/USD)
· Commission: $6 per lot (round-trip)
· Total Cost: $2 + $6 = $8 per trade
· Standard Account:
· Spread: 1.5 pips = $15
· Commission: $0
· Total Cost: $15 per trade
In this example, the Raw Spread account saves $7 per trade. For 10 trades a day, that’s $70 in savings—significant for active traders. However, if you only trade once a week, the Standard account’s simplicity might outweigh the cost difference.
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Common Myths About Raw Spread vs Standard Accounts
Myth 1: Raw Spread Accounts Are Always Cheaper
While Raw Spread accounts offer lower spreads, the commissions can make them more expensive for low-volume traders. Always calculate total costs based on your trading frequency.
Myth 2: Standard Accounts Are Only for Beginners
Many experienced swing traders prefer Standard accounts for their simplicity and suitability for longer-term strategies.
Myth 3: Raw Spread Accounts Guarantee Better Execution
While ECN accounts typically offer faster execution, reputable brokers with Standard accounts can provide competitive execution speeds.
Tips for Maximizing Your Trading Account
Regardless of whether you choose a Raw Spread vs Standard account, here are some tips to optimize your trading:
· Choose a Reputable Broker: Ensure your broker is regulated and transparent about spreads, commissions, and execution policies.
· Monitor Trading Costs: Use a trading journal to track spreads and commissions, helping you identify the most cost-effective account type.
· Leverage Technology: Use trading platforms like MetaTrader 4 or 5 to analyze spreads and execution speeds in real-time.
· Stay Educated: Continuously learn about forex market dynamics to make informed decisions about your account type.
· Start Small: Begin with a small account size to test your strategy before scaling up.
Conclusion: Which Account is Better?
There’s no one-size-fits-all answer to whether a Raw Spread account or a Standard account is better—it depends on your unique needs. If you’re an active trader, scalper, or high-volume trader, a Raw Spread account’s low spreads and transparency make it a strong choice. On the other hand, if you’re a beginner, low-volume trader, or prefer simplicity, a Standard account is likely the better fit.
To make the best decision:
· Analyze your trading style and frequency.
· Compare the total costs (spreads + commissions) for your typical trades.
· Test both account types with a demo account to see which feels right.
By understanding the strengths and weaknesses of each account type, you can choose the one that aligns with your goals and sets you up for success in the forex market.
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