What Is Spread in Trading? A Complete Guide to Spreads & Raw Accounts

Spread is the difference between the Bid and Ask price of a financial instrument. It is one of the primary transaction costs traders may encounter when opening or closing a forex or CFD position. Understanding how spreads work can help traders evaluate trading costs and compare different account structures.

Understanding the Basics of Spreads

The spread is calculated using:

Spread = Ask Price − Bid Price

For example, if EUR/USD is quoted at:

• Bid: 1.1050

• Ask: 1.1052

Then:

1.1052 − 1.1050 = 0.0002 = 2 pips

The spread in this example is 2 pips (0.0002).

Spread is one of the primary transaction costs associated with trading. The actual cost can vary depending on the instrument, position size, market conditions, account type, and other applicable broker fees.

The 3 Main Types of Spreads

Fixed Spreads

Fixed spreads are generally quoted at a predetermined level under normal market conditions, making them easier to estimate before entering a trade. 

The main characteristic of a fixed spread is cost consistency. Because the quoted spread generally remains stable during normal market conditions, traders may find it easier to estimate their spread cost before entering a position.

However, fixed spreads may not always reflect underlying market liquidity in real time. During major economic announcements or exceptional market conditions, execution and pricing conditions may differ from normal conditions.

Variable (Floating) Spreads

Variable spreads, sometimes referred to as floating spreads, fluctuate continuously according to market liquidity, volatility, and trading activity.

This pricing model responds more directly to changing market conditions, with available spreads influenced by liquidity provider quotes and prevailing market conditions. 

During periods of high market liquidity, such as when major forex trading sessions overlap, spreads may become narrower. In contrast, spreads can widen during major news events, low-liquidity trading hours, or periods of sudden market volatility.

For example, the spread on EUR/USD may be relatively narrow during the London–New York session overlap but become wider around a major economic announcement such as a US employment report or central bank interest-rate decision.

Because variable spreads respond dynamically to market conditions, transaction costs can change throughout the trading day. Traders therefore need to consider not only the average spread but also when and under what market conditions they trade.

Raw Spreads

A raw spread account is designed to provide traders with pricing that is closer to the underlying market spread, with the broker charging a separate commission rather than incorporating the entire trading cost into a wider spread.

Depending on the instrument and prevailing market conditions, spreads on major currency pairs can start from 0.0 pips. A separate commission may then be charged per lot traded, depending on the account's pricing structure. 

Instead of paying for the broker's markup primarily through a wider spread, traders see the underlying spread and pay a separate, transparent commission.

Raw spread pricing is commonly used in high-frequency and high-volume trading setups, where trading frequency and position size can make transaction costs an important consideration.

How Does a Raw Spread Account Work?

To understand this pricing structure more clearly, a Raw Spread Account separates trading costs into two main components: 

• Market spread

• Broker commission

Instead of primarily incorporating the broker's trading charge through a wider spread, the account structure uses a market-based spread and a separate commission. Under certain market conditions, the spread may reach 0.0 pips.

This model makes the spread and commission visible as separate components of the overall trading cost, which can make it easier to compare pricing structures.

However, traders should also consider execution conditions, swap charges, and other applicable broker fees when comparing accounts.

Raw Spread vs. Standard Account: What's the Difference?

The key difference is how trading costs are structured.

For example, a Standard Account may have a spread of around 1.0 pip with no separate commission, while a Raw Spread Account may offer a spread starting from 0.0 pips with a separate commission.

Neither account structure is universally better. Traders should compare the total trading cost based on their strategy, trading frequency, position size, and execution requirements.

*Actual spreads, commissions, and trading conditions may vary depending on the instrument, market conditions, account type, and applicable broker fees.

Factors That May Affect Spread Costs

Trading Session Liquidity

Liquidity tends to be higher when major trading sessions overlap.

The London–New York overlap is often one of the most active periods of the trading day. Higher market participation can contribute to tighter spreads on major pairs.

However, liquidity varies across instruments and market conditions, so traders should always monitor the actual spread available on the instrument they trade.

Spread Conditions During Major News Releases

Events such as NFP, CPI, FOMC decisions, and other central bank announcements can cause rapid changes in volatility and liquidity.

Traders should be aware that spreads may widen quickly around major economic releases as market conditions change. 

Raw Spread Account 

For traders who execute trades frequently, even small differences in spread may become more relevant when evaluating total trading costs. A raw spread structure involves tight spreads and separate commission-based pricing, which can affect the overall trading cost of a high-frequency or high-volume trading strategy.

However, traders should compare the spread plus commission, rather than focusing only on the advertised minimum spread.

FAQs

Do Raw Spread Accounts Charge a Commission?

Yes. A Raw Spread Account typically uses a separate commission while providing a lower market-based spread. 

Can Beginners Use a Raw Spread Account?

A Raw Spread Account involves a separate commission in addition to the market spread, so beginners should understand how both components contribute to total trading costs.

For beginners who prefer a simpler spread-based pricing structure, a Standard Account typically reflects trading costs primarily through the spread, while a Raw Spread Account presents the spread and commission as separate components.

The choice depends on the trader's strategy, trading frequency, position size, and preferred pricing structure.

Why Do Spreads Widen During Major News?

Major economic news can lead to rapid changes in market volatility and liquidity. As liquidity conditions change, liquidity providers may adjust their quotes to reflect increased market uncertainty. As a result, the difference between Bid and Ask prices may increase, causing spreads to widen. 

Conclusion

Understanding spread in trading can help traders evaluate transaction costs and compare different account structures.

For traders who prioritise pricing transparency and potentially tighter spreads, a Raw Spread Account provides a pricing structure with separate spread and commission components, commonly used in high-frequency and high-volume trading setups. However, no account structure is suitable for every trader, and the overall trading conditions, including spread, commission, execution, swap charges, and other applicable fees, should be considered when comparing account options. 

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