Forex spreads and execution: standard, ECN and raw accounts compared

One standard lot is 100,000 units of the base currency. On a pair quoted to four decimal places with the US dollar as the quote currency, one pip (0.0001) on one lot is therefore worth USD 10. A mini lot (10,000 units) is USD 1 a pip; a micro lot (1,000 units) is 10 US cents.

Yen pairs differ: the pip there is 0.01, so one pip on a lot of USD/JPY is JPY 1,000, whose dollar value depends on the prevailing rate. Hold that single number in your head and any fee table decodes in seconds.

Pepperstone charges a commission from USD 3.50 per lot per side on its Razor account, according to its own pricing page — USD 7.00 for the full round turn. Divide by the USD 10 pip value and that is 0.7 pips. Those 0.7 pips have to be added to the quoted raw spread before you compare anything.

Row three is the one that matters. A raw account with a heavy commission is more expensive than a decent standard account — and because a 0.1-pip spread looks impressive, the advertising never draws attention to it. The advantage of the raw model is transparency, not automatically price: you see the market spread and you know what the broker earns. Whether it is cheaper is decided by the commission.

The difference in the example is 0.4 pips, or USD 4 per lot. Scale it to annual volume.

Here is the uncomfortable truth for small accounts. At two lots a month, the account-type decision is worth USD 96 a year. A single inactivity fee or three international transfers cost more than that. If you trade infrequently, put the effort into withdrawal fees, base currency and platform quality rather than 0.4 pips — and note that raw accounts often demand a higher minimum deposit, which then sits idle for no benefit.

Somewhere around 20 to 30 lots a month the picture flips, and at three-figure monthly volumes the difference becomes by far the biggest lever on your cost base.

"From" describes the observed minimum, usually in the deepest-liquidity minutes of the day. The number you need for a cost calculation is a different one: the time-weighted average spread per pair across a full month. Some brokers publish it, many do not. Ask.

Where the spread reliably widens:

• At the daily rollover at 17:00 New York time, when liquidity providers square their books.
• At the Sunday open, often materially and for several minutes.
• In the seconds around economic data and rate decisions.
• Through thin holiday sessions, when a major centre is closed.

A worked example of why it matters. Suppose your broker averages 0.3 pips, but the rollover minute averages 4.0 pips — and 20% of your entries land in that window. Your realised average is 0.2 × 4.0 + 0.8 × 0.3 = 1.04 pips, more than three times the headline. Anyone building a strategy around rollover times is paying a completely different price from the one on the price list.

Dealing-desk market maker. The broker quotes the price itself and takes the other side. It earns from the spread and from the net result of internalised client flow. That is not automatically bad — internalisation often produces tighter prices and instant fills in small sizes. You simply want to know where the incentives point.

STP or no dealing desk. Orders go to liquidity providers and the broker earns a markup over their spread.

"ECN". Strictly, an electronic communication network with anonymous matching in a central book. In retail forex the label is usually applied to an aggregated feed from several liquidity providers with raw pricing plus commission. Either can be perfectly good; the word tells you less than the price does.

In practice most firms run a hybrid: small and mutually offsetting flow is internalised, the residual exposure is hedged externally. Where this becomes visible to you is last look — liquidity providers are typically permitted a brief window in which to reject or requote an order. The symptoms are rejections, requotes and asymmetric slippage.

Three metrics measure it: fill rate, slippage symmetry (positive slips should occur about as often as negative ones) and average execution latency. Some brokers publish execution statistics. If yours does not, log requested versus filled prices for a month on a small live account. Demo servers often do not run on the live pricing engine and prove very little.

Positions held through the rollover are rolled to the next value date. The interest differential between the two currencies sets the direction; the broker's markup is applied to both sides, which is why on many pairs both long and short are negative. On most pairs the triple swap falls on Wednesday, because the value date then jumps from Friday to Monday; on pairs with a shorter settlement cycle the triple day moves.

A worked example with the assumption stated: your broker quotes the long EUR/USD swap at −USD 6.50 per lot per night. A month with 22 trading nights contains one triple day, so 24 nights are charged. That is USD 156 — roughly twenty times the USD 8 it cost to open and close. On anything held longer than a few days, swap is the cost that matters, not the spread.

The other direction is just as instructive. Suppose a long position in a higher-yielding currency earns USD 4.00 per lot per night. Over a year that is about USD 1,460. Against a notional of USD 110,000 that is 1.33% — but against USD 3,667 of margin at 30:1 it is nearly 40%. That is exactly what makes carry trades attractive. It is also exactly why they end badly: an adverse move of 1.33% erases a full year of carry, and 1.33% on a major pair is a quiet week.

• Currency conversion. Commission and realised results are converted into your account currency. A 1.0% markup on USD 50,000 of realised P&L over a year costs USD 500; at 0.25% it costs USD 125. If you mostly trade dollar pairs, hold the account in dollars.
• Inactivity fees. At some providers after three months without a trade, often EUR 10 to 15 a month — for a small account, more than the entire spread saving of a raw model.
• Withdrawal fees. Check how many withdrawals a month are free and what a transfer outside the SEPA area costs.
• Card deposit fees. Percentage-based at some providers.
• Base currency. The single most consequential setting, because it usually cannot be changed later.

Retail clients in the EU and UK sit under the ESMA product intervention limits: 30:1 on major currency pairs, 20:1 on non-majors, margin close-out at 50% of minimum required margin, and negative balance protection per account. The UK implements the same regime through PS19/18.

The same brand often runs several companies: an EU entity, a UK entity, an Australian entity and an offshore entity at 500:1 or more without the European obligations. Worth being clear about: higher leverage does not reduce your cost per lot by a cent. It only ties up less margin — and shortens the distance to a close-out.

Compensation schemes work the same way here as everywhere: they cover the failure of the provider, not trading losses. The UK's FSCS pays up to GBP 85,000 per person per firm and explicitly excludes claims for poor performance; the limits for investment firms in Germany and Cyprus are lower. Switzerland has no ESMA-equivalent leverage cap, so for Swiss clients everything depends on which entity they contracted with. What counts, always, is the name on the account statement.

Take someone trading 50 lots a month who converts USD 40,000 of realised results into a euro account over the year.

USD 2,400 of difference on an identical strategy. And moving to a provider whose conversion markup is 0.25% rather than 1.0% adds another USD 300 — without changing a single trade.

1. 1Convert your broker's commission into pips (round-turn commission divided by pip value) and add it to the spread. Anything else is not a comparison.
2. 2Estimate your realistic monthly volume in lots. Below roughly 20 lots, the raw-versus-standard question is secondary.
3. 3Ask for the time-weighted average spread per pair over a full month, not the "from" figure.
4. 4Check the swap table for your pairs and multiply by your typical holding period. Beyond a few days, swap decides the outcome.
5. 5Open the account in the currency you mostly trade in, and check the conversion markup.
6. 6Log requested versus filled prices for a month on a small live account. Positive and negative slippage should occur at similar frequencies.
7. 7Read which legal entity appears on your account statement, then look up its regulator, leverage limits and compensation scheme.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

This guide is information, not investment advice. Spreads, commissions and regulatory requirements change; always check the current position with the provider and with the relevant supervisory authority.