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The Two Cost Models
Forex brokers charge for their services in one of two ways: through the spread (built into the price you see) or through a separate commission per trade. Standard accounts use the spread-only model — you see one price and the broker's profit is the difference between the bid and ask. ECN/Raw accounts use the commission model — you see the raw market spread (often 0.0 pips) but pay a fixed commission per lot per side. Understanding which model is cheaper for your trading volume is one of the most practical decisions you will make as a trader. The wrong choice can cost you hundreds or thousands of dollars per year in unnecessary trading costs.
What is a Spread?
The spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. For EUR/USD, if the bid is 1.10500 and the ask is 1.10520, the spread is 0.00020, which equals 2.0 pips (1 pip = 0.0001 for most pairs). The spread is your cost every time you open a trade — you start in a small loss equal to the spread. Spreads can be variable (changing with market liquidity) or fixed (constant regardless of conditions). Most modern brokers offer variable spreads. Spreads are tightest during the London and New York sessions when liquidity is highest, and widest during the Asian session and around major news events. A typical Standard account offers EUR/USD spreads from 0.8 to 1.5 pips. A typical ECN/Raw account offers EUR/USD spreads from 0.0 to 0.3 pips.
What is a Commission?
ECN/Raw accounts charge a commission per lot per side. "Per side" means you pay when you open the trade and when you close it — so a "$3.50 per lot per side" commission equals $7.00 round-turn (open + close) per standard lot. A standard lot is 100,000 units of the base currency. So for a 1-lot EUR/USD trade with $3.50/side commission, you pay $3.50 to open and $3.50 to close — $7.00 total in commission, plus the raw spread cost. The advantage is that the raw spread is often 0.0 to 0.2 pips, so the total cost ($7.00 + ~$2.00 spread) is about $9.00, compared to a Standard account where a 1.0 pip spread costs $10.00 with no commission. The savings per trade are small but compound significantly over hundreds of trades.
Calculating Total Trading Costs
To compare accounts, calculate the total round-turn cost per lot. For a Standard account with a 1.0 pip EUR/USD spread: 1.0 pip × $10/pip = $10 per round-turn lot. For an ECN account with a 0.2 pip spread and $3.50/side commission: 0.2 pip × $10/pip + ($3.50 × 2) = $2.00 + $7.00 = $9.00 per round-turn lot. The ECN account saves $1.00 per lot. If you trade 100 lots per month, that is $100/month or $1,200/year in savings. For 500+ lots per month, the savings exceed $6,000/year. However, if you only trade 2-3 lots per month, the $1.00/lot savings ($2-3/month) may not justify the higher minimum deposit and more complex cost structure of an ECN account.
When Standard is Cheaper
Standard accounts are cheaper when: (1) you trade fewer than 5-10 lots per month — the spread cost difference is too small to justify the ECN commission; (2) you are a beginner who wants simple, transparent pricing without calculating commission; (3) the broker's Standard spread is competitive (some brokers offer Standard spreads from 0.6 pips, which at $6/lot is cheaper than many ECN accounts); (4) you trade during high-liquidity sessions when spreads are naturally tight. Brokers like XM and Exness offer competitive Standard accounts with no commission. See our account types page for a full comparison.
When ECN is Cheaper
ECN/Raw accounts are cheaper when: (1) you trade 10+ lots per month — the per-lot savings compound significantly; (2) you are a scalper who needs the tightest possible spreads to make small per-trade profits viable; (3) you use Expert Advisors that execute high-frequency strategies; (4) you trade during the London/New York overlap when ECN spreads are at their tightest. Brokers like IC Markets ($3.50/side), FP Markets ($3/side), and Pepperstone ($3.50/side) offer excellent ECN pricing.
Hidden Costs Beyond Spreads and Commissions
Spreads and commissions are not the only costs. Also consider: (1) overnight swap (rollover) fees — charged for holding positions past 5pm EST, can be significant for long-term trades; (2) inactivity fees — $10-15/month after 6-12 months of no trading at many brokers; (3) deposit/withdrawal fees — most brokers don't charge these but some do, especially for bank wire; (4) currency conversion fees — if your account currency differs from your deposit currency; (5) guaranteed stop-loss order fees — some brokers charge a premium for GSLOs. Read the broker's full fee schedule, not just the headline spread.