Spread vs commission — how to really count broker cost?
The advert shouts "zero commission" and you read it as "free". That is the first beginner's mistake. A broker that charges no commission still has to earn from you, and it does so through a wider spread baked into the price. The money leaves your account either way; you just never see a separate line for it. This whole article comes down to one question: what does a single trade actually cost you, no matter what the broker calls its pricing?
The two ways a broker earns from your order
A retail forex broker has two basic revenue channels from a client. The first is the spread — the difference between the buy price (ask) and the sell price (bid). There is also a third, less visible model: a broker can route orders to specific liquidity providers in exchange for payment — a mechanism known as PFOF (payment for order flow), banned in the EU but found elsewhere. You buy at the higher price, you sell at the lower one, and the broker keeps the gap. You pay the spread the moment you open a position, because you enter on the ask while the market values you immediately at the bid. The spread is built into the price and never appears as a separate charge, which is exactly why it is so easy to overlook.
The second channel is the commission — an explicit, fixed fee charged on position size, usually quoted per lot. Most commonly you will meet the "per side" model, billed separately on opening and on closing, so the figure in the pricing table must be doubled to get the full cost of a complete round-turn trade. Commission shows up in the platform as its own line, which makes it feel more painful psychologically — even though it does not necessarily mean a higher total cost.
In practice brokers take two main approaches. A Standard account usually has no commission but a wider spread, so the entire cost sits in the price. A Raw or ECN account cuts the spread close to zero but adds a per-lot commission. These are not two levels of honesty, just two ways of packaging the same fee. The trick is to compare them in one shared unit: the total cost of a trade.
How to compute the true cost of one trade
The formula is simple and works for any pricing model:
total cost = (spread in pips × pip value) + round-turn commission
For EUR/USD at one standard lot (100,000 units) one pip is worth about 10 dollars. At 0.1 lot that is roughly 1 dollar, at 0.01 lot about 10 cents. With that number you reduce both spread and commission to the same unit, and only then can you see which model is cheaper for you. Without it you are comparing pips with dollars, and the answer comes out as nonsense.
A concrete example: a Standard account versus a Raw account
Let me use a hypothetical but realistic comparison (the numbers are illustrative, meant to show the mechanism — check your own rates with your broker). Assume two accounts on the same EUR/USD pair and one lot.
On a single trade the gap looks modest. But trading is about volume. A hundred trades a month at one lot cost 1,200 dollars on the Standard account and 800 dollars on the Raw account. Four dollars per trade have grown into four hundred dollars a month — nearly five thousand a year that stays in your account instead of the broker's. This is precisely why active traders watch the pricing model so closely.
Where the break-even point between the models sits
Since the Raw account usually wins with active trading, the natural question is when it stops winning. The answer hides in the commission, because it is the fixed, "hard" cost that does not depend on how tight the spread is. On very small positions a minimum commission can be disproportionately high.
Return to the example but shrink the position to 0.01 lot. On the Standard account the 1.2-pip spread then costs about 12 cents, and that is all. On the Raw account the spread is a fraction of a cent, but the round-turn commission charged per lot also shrinks — and here is the catch: many ECN brokers apply a minimum commission per order. If that minimum is higher than a proportional 7 cents, the micro-position on the Raw account is no longer cheaper. For someone trading in hundredths of a lot, a plain spread is often simply more convenient and cheaper.
The second factor is frequency. The more trades you place, the more each saved pip matters, because you multiply the saving by volume. At a few trades a week the difference between the models over a year is symbolic and not worth switching brokers for. At dozens of trades a day the same difference decides whether your strategy even has a positive expectancy after costs.
"National competent authorities' analyses show that 74–89% of retail accounts typically lose money, with average losses per client ranging from EUR 1,600 to EUR 29,000." — European Securities and Markets Authority (ESMA), product intervention press release, 2018
Scalper or occasional trader — who is each model for
From all this a fairly clear split emerges. A scalper and active day-trader, who open dozens of positions a day and often close them after a few pips of movement, will almost always be better off on a Raw or ECN account. At their volume the wide spread on a Standard account would eat most of the edge, while a low spread plus an explicit commission gives the lowest real cost per unit. Execution quality matters to them too, because a one-pip difference on entry makes their result.
The occasional trader, who looks at the market a few times a week and holds positions longer, has the opposite arithmetic. Their total volume is low, so a few dollars per trade do not add up to a meaningful sum, and a plain spread with no separate commission is simply easier to track. Standard accounts also tend to accept a smaller deposit and scale better with micro-positions, which matters for a beginner with little capital.
Whatever the profile, spread and commission are not the only costs. The real bill also includes overnight swap points for holding a position, currency-conversion fees on deposits and withdrawals, and a possible inactivity fee. A fuller picture comes from the separate breakdown of all real trading costs, and I develop the spread-versus-commission logic itself in the piece on spread versus commission as real trading costs.
What to do before you choose a broker account
- Estimate your monthly volume in lots. Multiply your average number of trades by your typical position size. That single number decides whether a commission account is worth it at all — without it you are choosing blind.
- Compute the cost of both models with the formula. For your main pair, plug spread and commission into the formula from this article and compare the total round-turn cost. While you are at it, check the minimum commission per order, because that is what breaks the maths on micro-positions.
- Read the broker's "Costs and Charges" document. Every EU-regulated broker is obliged to disclose costs in full. Verify the current spread and commission rates at the source — figures from adverts and comparison sites are often stale.
- Match the model to your style, not to a marketing slogan. Active trading and scalping argue for a Raw/ECN account; occasional trading with small capital argues for a plain spread. If you are torn between pricing architectures, start with the difference between an ECN and a market maker, and for the basics of the spread itself see the ForexMechanics glossary.
Sources & bibliography
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European Securities and Markets Authority (ESMA) ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors · Komunikat o interwencji produktowej z 2018 r.: 74–89% rachunków detalicznych traci pieniądze oraz obowiązek pełnego ujawnienia kosztów (spread i prowizja) klientom CFD. www.esma.europa.eu ↗
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IC Markets Raw Spread Trading Account · Przykład modelu ECN: prowizja 3,50 USD od lota za stronę (7 USD round turn) przy spreadzie EUR/USD od 0,0 pipsa, średnio około 0,1 pipsa. www.icmarkets.com ↗
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XTB Fees and commissions at XTB · Przykład modelu Standard: brak prowizji na FX, koszt wbudowany w spread; osobno opłata za przewalutowanie 0,5%. www.xtb.com ↗
Frequently asked
What is the difference between a broker spread and commission?
The spread is the difference between the buy price (ask) and the sell price (bid) and it is built into the instrument price — you pay it when you open a position and never see it as a separate fee. Commission is an explicit, fixed amount charged on position size, usually quoted per lot and often billed separately on opening and closing, so you must double it to get the full round-turn cost. The key point: both are simply a fee for trading, just packaged differently. A zero-commission account usually has a wider spread, while a low-commission account has a spread close to zero. To compare them, reduce both costs to the same unit — the full cost of one trade expressed in money.
Is a "zero commission" account really free?
No. A broker that charges no commission still has to earn from you, so it moves its revenue into the spread — the gap between the buy and sell price. You pay exactly the same, but the cost is built into the price and never appears as a separate line in your history, which makes it easy to miss. That does not make a no-commission account bad — on small positions and infrequent trading a plain, slightly wider spread can be cheaper and more convenient than a commission account. The point is not to confuse the absence of a separate fee with the absence of a cost. Always count the total cost: the spread converted to money plus any round-turn commission, and on top of that swap points and currency-conversion fees.
How do I compute the total cost of one trade?
Use one formula that works for any pricing table: total cost equals spread in pips times pip value, plus the round-turn commission. For EUR/USD at one standard lot a pip is worth about 10 dollars, at 0.1 lot about 1 dollar, and at 0.01 lot about 10 cents. A hypothetical example: a Standard account with a 1.2-pip spread and no commission costs about 12 dollars, while a Raw account with a 0.1-pip spread and a 7-dollar round-turn commission costs about 8 dollars. The Raw account is cheaper by 4 dollars per trade, but only after multiplying by your volume will you see whether that gap matters. The numbers are illustrative — check your own rates with the broker.
When is a Standard spread account better than a Raw account?
In two situations. First, on very small positions: on a Raw account the spread is negligible, but many ECN brokers apply a minimum commission per order that, at a 0.01-lot position, can be higher than the proportional commission — and then a plain spread on a Standard account works out cheaper. Second, with infrequent trading: if you place a few trades a week, your total volume is low and a few dollars per trade do not add up to a meaningful sum over a year, while the absence of a separate commission is simply more convenient. Standard accounts also tend to accept a smaller deposit and scale better with micro-positions. Active day-trading and scalping, by contrast, argue for a Raw or ECN account, because at high volume every saved pip counts.