Broker spreads are the gaps between the prices at which a broker lets you sell and buy an instrument. The pricing model determines how much of your trading cost sits inside that gap, how much appears as a separate commission, and what other charges apply.
A narrow spread does not automatically mean a cheap account. A wider spread does not automatically mean poor value. The useful comparison is the cost of completing your usual trade, under the conditions in which you actually trade. Account names such as “raw,” “standard” and “ECN” help organise the offer, but they do not replace the fee schedule or execution policy.
What a Broker Spread Includes
The bid is the price available to sell; the ask is the price available to buy. If EUR/USD is quoted at 1.10000 bid and 1.10010 ask, the spread is 0.00010, or one pip. Buying at the ask and immediately selling at the unchanged bid would produce a one-pip loss before commissions.
Where that spread comes from depends on the product and execution arrangement. For U.S. stocks, a broker can send an order to an exchange, another market maker or an electronic communications network, or fill it internally. The displayed spread is therefore not automatically a charge created entirely by your broker. These routes are covered in the SEC’s explanation of stock order execution.
Retail over-the-counter forex works differently. Your trade is a contract with the dealer, rather than an order placed directly on a stock exchange. The dealer is your contractual counterparty even if it hedges its exposure elsewhere. The CFTC’s advisory on OTC forex trading makes that distinction explicit.
How Brokers Construct Their Quotes
Under a markup arrangement, the broker starts with prices available from its liquidity sources and adjusts the customer quote. It might reduce the bid, increase the ask, or adjust both. The resulting spread contains an upstream price gap plus the broker’s adjustment.
A dealer can also construct its own customer prices using reference markets, hedging costs and its exposure. There need not be one external quote that passes through unchanged. This matters when comparing a broker’s platform with another price feed: a difference deserves investigation, but does not by itself prove an execution error.
Nor should you treat the entire spread as pure broker profit. External execution, hedging and operating expenses can absorb part of the revenue. What matters to you is the executable customer price and any separately charged amount.
Cost disclosures can help separate those components. For U.S. NFA Forex Dealer Members, applicable transaction confirmations must disclose commissions and other fees, plus either the dealer’s markup or markdown on qualifying straight-through transactions, or the midpoint spread cost on other transactions. The requirements appear in NFA Compliance Rule 2-36 on forex transaction disclosures.
The Main Broker Pricing Arrangements
The main account distinction is between charges embedded in the quote and charges billed separately. A spread-only account bundles more of the dealing charge into the bid and ask. A commission account separates at least part of that charge. Our comparison of raw spread and standard trading accounts examines that choice in more detail.
| Arrangement | How charges appear | What to verify |
|---|---|---|
| Standard or spread-only | The dealing charge is embedded mainly in the quoted spread. | Whether “no commission” applies to your instrument and account. |
| Raw spread plus commission | A narrower quoted spread is combined with a separate trading fee. | The commission per side, minimum charge and any remaining markup. |
| Zero-spread offer | A zero quoted gap applies under stated conditions, potentially with other charges. | Eligible instruments, qualifying periods and commission rates. |
| Volume-based pricing | Rates or rebates depend on qualifying trading activity. | The measurement period, thresholds and treatment of missed tiers. |
Spread-Only Pricing
Spread-only pricing makes the dealing charge easier to see in one place. It does not make trading free. Check whether the quoted spread is a minimum, a typical value or a fixed commitment subject to exceptions. Those descriptions answer different questions.
Raw Spreads and Separate Commissions
A raw account moves more of the visible charge outside the spread. Compare the combined amount rather than rewarding the account for displaying a smaller number. Also check whether commission is quoted for opening a position, for both opening and closing, or per amount traded.
Zero Spreads and Volume Discounts
A zero spread describes a price gap, not the complete transaction bill. Conditions can change the comparison considerably, which is why zero-spread account fees and restrictions deserve a separate check.
Volume discounts need the same discipline. Calculate costs at the tier your normal activity reaches. Trading more simply to qualify for a cheaper rate can increase the total bill while making each trade look better on paper.
A Pricing Model Is Not an Execution Model
Spread-only and commission-based describe how the broker charges you. Market maker, ECN and straight-through processing describe different aspects of dealing or order handling. Mixing these categories leads to weak comparisons: charging commission does not prove agency execution, and quoting a wider spread does not prove that every trade remains unhedged.
A market maker quotes prices and deals as principal. It can retain exposure, hedge some of it, or offset it externally. An electronic communications network matches trading interests electronically. Straight-through processing, usually shortened to STP, concerns automated processing. These descriptions do not establish the entire contractual relationship.
For U.S. retail forex, an STP label does not remove the dealer from your contract. NFA rules expressly prohibit Forex Dealer Members from suggesting that STP makes them just a middleman rather than the customer’s counterparty. The distinction appears in NFA’s forex communications requirements.
The practical question is what happens after you submit an order. Does the firm execute against its own quote? Does it obtain an external offset before confirming your trade? Can it reject or requote an order? Which prices does it use when markets move?
Do not turn this into a simple good-model versus bad-model contest. Retaining customer exposure creates a potential conflict, but external routing does not eliminate every commercial incentive or execution problem. Assess the contract, charges and observed fills together. The separate guide to ECN and market maker pricing develops those differences without treating either label as a quality guarantee.
Fixed and Variable Spreads Are Another Separate Choice
Fixed and variable describe how the quoted gap behaves, not necessarily where the order goes. A fixed-spread offer aims to maintain a stated gap under its contractual conditions. A variable spread changes as the broker’s quoted bid and ask change.
Read the exceptions before treating “fixed” as unconditional. Check the treatment of market openings, scheduled announcements, disrupted pricing and larger orders. A stable quoted spread is not, by itself, a promise that every order will fill at the price displayed.
For variable pricing, compare conditions during your own trading hours. A minimum recorded during a quiet, liquid period says little about the price available during your usual session. Currency examples and the mechanics behind those changes are covered in our guide to forex spreads.
Compare One Complete Trade, Not Two Headline Numbers
Consider a hypothetical EUR/USD trade of 100,000 euros in a U.S. dollar account. At that position size, one pip is worth $10. Assume unchanged quotes between entry and exit, with no slippage or financing:
Account A: a 1.1-pip spread and no commission produces an $11 spread cost. Account B: a 0.2-pip spread plus $3.50 commission on entry and $3.50 on exit produces a $9 combined cost: $2 from the spread and $7 in commissions.
Account B costs $2 less under those assumptions. That does not establish that it will be cheaper for every instrument, order size or trading session.
Avoid doubling the spread in this unchanged-quote example. Buying at the ask and selling at the bid loses one full spread, not two. If quotes or spread widths change between entry and exit, calculate the result from the actual prices rather than relying on this simplified shortcut.
For a broader comparison, add holding charges and other applicable fees using the same trade size and holding period. The method is covered in comparing spreads, commissions and financing costs.
Execution Can Change the Result
A cheap quote is useful only if the relevant quantity can trade on acceptable terms. Compare the price displayed when you submitted an order with the price actually filled, while keeping the timing and order type consistent.
Look beyond average execution speed. Record rejected orders, partial fills, requotes and the direction of price differences. A quick fill at a worse price is not automatically preferable to a slightly slower fill at a better one.
Keep spread and slippage separate in your records. The spread is the gap between the bid and ask; slippage is the difference between a reference or expected execution price and the actual fill. Adding slippage to a calculation that already captures the same price difference can double-count the cost. Our guide to spread versus slippage explains that distinction.
Holding Charges Can Outweigh the Entry Spread
For positions held overnight, compare financing terms before choosing an account on spread alone. Check the calculation basis, reference rate, broker adjustment, charging days and account currency. Where a long and short position remain open together, do not assume their funding charges cancel out.
This is not just a theoretical concern. On October 15, 2026, the UK FCA highlighted continuing concerns about CFD overnight charges, opaque funding markups and charges on matched buy and sell positions. Its findings also noted wide differences between firms and underlying assets in the FCA review of CFD pricing and funding practices.
A small entry saving can disappear during a longer holding period. Compare the account against the way you expect to use it, not the shortest possible trade.
What to Check Before Choosing a Pricing Model
Build the comparison around one representative trade, then repeat it for a less favorable trading period. Keep the instrument, position size, account currency and holding period consistent.
- Identify the contracting firm: use its account documents, not just the group’s trading name.
- Read the spread description: distinguish minimum, average, typical and fixed quotes.
- Normalise commissions: convert every rate into the cost of opening and closing the same position.
- Check conditions: include minimum fees, volume tiers, funding and conversion charges.
- Review execution: compare actual fills and order handling, not the account label alone.
The preferable model is the one that delivers an acceptable completed-trade cost under your trading conditions. A raw account can lose its apparent advantage after commissions; a spread-only account can become expensive through wider quotes. Neither a low spread nor a familiar execution label removes market or counterparty risk.