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The majority of Forex brokerages using a ECN/STP execution model apply a mark-up to the spreads they receive from liquidity providers or those matched up using their Electronic Communication Network (ECN). For instance, a liquidity provider might quote a brokerage a 0.3 pip spread on the EUR/USD, the brokerage does not pass this ‘raw spread’ onto their customers and instead place a mark-up on the spread. So in our fictional scenario a trader may actually ending receiving a spread in excess of 1 pip. The difference between the two spreads, is used by the brokerage to cover operating costs and hopefully allow for the brokerage to turn a profit.

Not all brokerages mark-up the spreads received from their liquidity providers, with some brokerages instead charging traders commission. Commission is usually set to some fixed amount per 1 million notional, varying depending on the currency pairing in question. This means that traders are able to see the underlying spreads offered by the brokerage for themselves. Some traders feel that this leads to greater transparency as they are able to see the actual quotes offered by a brokerages liquidity providers. Some traders also argue that ‘raw spread’ accounts often offer better value for money, stating the total costs of the Spread and Commission are often lower than a marked-up spread. When comparing the spreads on offer at different brokerages traders should remember to take account of commission in order to work which brokerage gives them the best value for money.

If a brokerage advertises ‘raw spreads’, but does not charge a commission traders should be wary. It is not possible to offer ‘raw spreads’ without charging traders commission, as without a mark-up the brokerage would not be making any money, unless the brokerage is B-booking certain clients in which case it wouldn’t be providing ECN/STP execution.

Many brokerages offer ‘raw spread’ accounts or simply never mark-up spreads received from liquidity providers. It is open for debate whether ‘raw spread’ accounts are superior, with the answer largely being down to a traders preference. While a ‘raw spread’ account allows you to see the underlying spreads offered by a brokerages liquidity providers, it also requires traders work out how much they will be charged in commission in order to work the total cost of a trade before entering it. Traders should carefully consider spreads among other factors, when picking a brokerage to operate with making sure they take any commissions into account.

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