Forex trading is an exciting way to earn money, but it can also be a daunting task if you don’t have the right tools and knowledge. One of the important things that a trader should consider when opening a forex account is the type of account to choose from. In this article, we will focus on raw spread accounts, explain what they are, their benefits and risks involved, and how they differ from standard accounts.
What is a Raw Spread Account?
A raw spread account is a type of forex account where traders get direct access to prices from liquidity providers without any markup or commission from the broker. This means that traders can trade with raw spreads, which is the difference between the bid and ask price of a currency pair, without any additional charges.
How does a Raw Spread Account Work?
To understand how a raw spread account works, let’s first explain how brokers make money in forex trading. Brokers usually add a markup or commission to the spread offered by liquidity providers, and the difference between the two becomes the profit for the broker. However, with raw spread accounts, brokers don’t add any markup or commission, and traders get direct access to prices from liquidity providers.
The prices provided by liquidity providers are usually more competitive than those provided by brokers since they are closer to the interbank market. Therefore, raw spread accounts offer traders tighter spreads, faster execution speeds, and better pricing than standard accounts.
Benefits of Raw Spread Accounts
- Competitive Pricing: As mentioned earlier, raw spread accounts offer traders access to real-time prices from liquidity providers, which means that traders can trade at a more competitive price than standard accounts. This can result in significant savings, especially for high-volume traders.
- Faster Execution Speeds: Since raw spread accounts offer direct access to liquidity providers, the execution speed is usually faster than standard accounts. This is because there are fewer intermediaries involved in the trade process, which reduces the time it takes to execute a trade.
- Transparency: With raw spread accounts, traders can see the actual prices of currency pairs without any markup or commission from the broker. This provides transparency and allows traders to make informed decisions based on real-time market conditions.
- Flexibility: Raw spread accounts offer traders greater flexibility in terms of trading strategies. Traders can use various techniques like scalping, hedging, and automated trading since there are no restrictions on the type of strategy used.
Risks Involved with Raw Spread Accounts
- Higher Initial Deposits: Most brokers require a higher initial deposit for raw spread accounts compared to standard accounts. This could be a challenge for traders who don’t have a lot of capital to start with.
- Volatility: Since raw spread accounts offer tighter spreads, they are more susceptible to market volatility. This means that traders may experience slippage when executing trades during volatile market conditions.
- Lack of Features: Some brokers may offer fewer features with raw spread accounts compared to standard accounts. These features may include educational resources, research tools, and customer support.
Raw Spread Account vs Standard Account: Which one suits you best?
Choosing between a raw spread account and a standard account ultimately depends on your trading style, objectives, and budget. If you are a high-volume trader looking for competitive pricing and fast execution speeds, a raw spread account might be ideal for you. On the other hand, if you are a beginner or have a limited budget, a standard account might be a better choice since it offers lower initial deposits and more features.
Conclusion
In summary, raw spread accounts offer traders access to real-time prices from liquidity providers without any markup or commission from the broker. This provides competitive pricing, faster execution speeds, transparency, and greater flexibility in trading strategies. However, traders should also be aware of the risks involved, which include higher initial deposits, market volatility, and fewer features. Ultimately, choosing between a raw spread account and a standard account depends on your trading style, objectives, and budget.