What is the Difference between Raw Spreads and Zero Spreads?

Most traders often confuse themselves between raw spreads and zero spreads. It is important to know the difference.

When choosing a trading account, you often encounter different spread terms. These determine your trading conditions and your ability to make profitable trades. Most traders often confuse themselves between raw spreads and zero spreads. It is important to know the difference so you know what account type is right for you.

What are Raw Spreads

Raw spreads refer to the difference in broker and market prices that are minimal and close to zero. It is important to note that raw spreads do not necessarily mean zero spreads. Another important fact about raw spreads is that it is always floating. What this means is that the spread is constantly changing. This is why it is raw, as it is real. One moment your spread may be close to zero, and the other may be a few pips higher. Raw spread trading accounts are among the most popular accounts with any broker. Let's dive into it further:

Raw Spread Trading Accounts

Real market prices are provided for all instruments via a raw spread trading account, sometimes called an ECN account. As forex brokers do not add any markup to asset pricing, the spreads they provide are typically very low or even nil in some cases.

Traders, on the other hand, must pay a larger commission price for every deal carried out. It is essential to consider that the spread in raw spread trading accounts is almost always floating. This indicates that it is continuously changing and may be zero at one time while not zero at another. Some forex brokers will charge fees for opening and terminating a deal, while others may wait until the trade has completed one full round-turn before beginning to do so.

Benefits of Raw Spread Accounts

Raw spread accounts are the most popular type of trading account as it is easily available with any broker, and traders can benefit from spreads that may reach close to zero depending on the market conditions. Brokers don't markup prices in raw spread trading accounts.

Drawbacks of Raw Spread Accounts

The biggest drawback of raw spread accounts is that they charge commissions even when the spread is not necessarily zero. Another drawback is that the spreads are floating and may not always be at the best value for profitable trades daily.

What are Zero Spreads

Zero spreads refer to the difference in broker and market prices that are zero or non-existent. It is important to note that this differs from raw spreads because the spread is fixed and not floating. This means a currency pair with zero spreads will remain at zero spreads no matter the market conditions.

You should know that most brokers don't offer trading accounts with zero spreads, as it makes it nearly impossible for them to earn any money. However, those that do offer zero-spread accounts do so by charging hefty commissions to make up for it.

Zero Spread Trading Accounts

The zero spread account is one that brokers provide in which there is no difference between the bid and asks the price. Hence, when traders open positions, they can have more in-depth knowledge of the levels at which they will enter and leave their positions. In addition to being the ideal account for the execution of specific forex trading methods, such as day trading and high-frequency scalping, it is extremely useful in the computation of losses incurred from activities other than trading.

Traders can enhance their profit and produce a more accurate projection of their projected revenues when using a zero-spread account since the primary benefit of this type of account is the absence of spread. Hence, traders can exactly estimate their executions without being concerned about the narrowing or tightening of spreads. This enables traders to make more informed trading decisions.

Benefits of Zero Spread Accounts

The biggest benefit of zero-spread accounts is that they offer fixed spreads at zero. You don't have to worry about the spreads shifting due to market conditions. While this account type does charge commissions, it is understandable for the benefits that it provides.

Drawbacks of Zero Spread Accounts

The biggest drawback of zero-spread accounts is that they're hard to find. Most brokers don't offer zero-spread accounts as these conditions are a recipe for a loss. They cannot be profitable through this business model, so they don't offer it to most clients.

Which is a Better Trading Account

There is a possibility that every trader, in line with how they trade, will hold a unique perspective. The zero-spread trading account will probably be ideal for you if you are a scalper and need to make money off of relatively tiny shifts in the pricing of assets. But, if you trade using swings or positions, you may find that the raw spread trading account is more beneficial to your trading style.

If you employ a more long-term strategy, you will have more flexibility in trading accounts. In contrast to short-term tactics, which heavily rely on having the most accurate price, you are not required to choose the one that best suits your needs. You may analyze the spread fees that your broker charges and the commission fees that other brokers levy to see which would result in cheaper expenses for your trading methods.

Final Verdict

There is no doubt that zero spreads may seem like the better option for most traders. However, this is also a trading account that is hard to find. As the next best thing, you can trade under a raw spread account, which can still assure you some very reasonable spreads most of the time.

Sometimes raw and low-spread brokers will provide two types of spread, floating and fixed. What is the difference between the two, and which one is better?