Forex trading is a complex financial market where investors trade currencies from different countries. In this market, there are different types of spreads that traders may encounter, including raw spreads. Raw spreads are a relatively new concept in forex trading that has gained popularity among traders. In this article, we will explain what raw spreads are in forex and how they differ from other types of spreads.
A spread is the difference between the bid and ask price of a currency pair. The bid price is the price at which a trader can sell a currency, while the ask price is the price at which a trader can buy a currency. The spread is the cost that traders pay to enter a trade. In forex trading, spreads can be fixed or variable. Fixed spreads are constant and do not change, while variable spreads fluctuate based on market conditions.
Raw spreads, on the other hand, are variable spreads without any markup or commission added by a broker. Raw spreads are the raw market spreads that traders see on the interbank market. The interbank market is a network of banks and financial institutions that trade currencies with each other. Raw spreads reflect the actual market conditions and are, therefore, the most transparent and accurate spreads that traders can get.
Raw spreads are also known as ECN (Electronic Communication Network) spreads. ECN is a technology that connects traders with liquidity providers, such as banks and other financial institutions. ECN brokers offer raw spreads because they do not have to act as a market maker. Instead, they act as a facilitator between traders and liquidity providers. ECN brokers charge a commission for their services, but they do not mark up the spreads.
Raw spreads are beneficial to traders because they offer the lowest possible spreads available in the market. Since raw spreads reflect the actual market conditions, traders can get the best prices for their trades. Raw spreads are also beneficial for traders who use scalping or day trading strategies, as they require low spreads to be profitable.
Raw spreads are not suitable for all traders, however. They are typically offered by ECN brokers, which require a minimum deposit and charge a commission. ECN brokers also have different trading conditions than market maker brokers. For example, ECN brokers may have higher minimum trade sizes, and their trading platforms may be more complex. As a result, raw spreads may not be suitable for beginner traders or traders with small trading accounts.
In conclusion, raw spreads are a type of spread that reflects the actual market conditions without any markup or commission added by a broker. Raw spreads are the most transparent and accurate spreads available in the market, and they are beneficial for traders who require low spreads for their trading strategies. However, raw spreads are not suitable for all traders, as they are typically offered by ECN brokers that require a minimum deposit and charge a commission. Traders should consider their trading goals and account size before choosing a broker that offers raw spreads.
