Define “raw spread” before you evaluate it
A “raw spread” brokerage model is usually meant to describe pricing where the broker shows a spread closer to the underlying market’s price difference, then adds an explicit commission for trading. The purpose of this structure is to separate (1) the market-linked spread component from (2) provider-charged compensation (commission and possibly other fees).
Because wording varies, you should treat “raw” as a description of how prices are presented, not as a guarantee of cheaper trading. The same label can correspond to different commission levels, minimum charges, and fee structures.
Check the full cost model, not only the headline spread
When comparing raw spread brokers, estimate the total trading cost under your assumptions rather than relying on spread alone.
Key items to check:
- Commission schedule: per lot, per trade, or per side. Confirm whether it is charged on entry only or on both sides.
- Other fee types: fees that may apply independently of commission (for example, account or inactivity fees), and any charges tied to instruments or market conditions.
- How spreads are quoted: whether “raw” spread is based on a particular venue, displayed as-is, or averaged/rounded.
- Minimum trade sizes and lot definitions: smaller trades may face minimum commission or different effective cost.
Simple example (assumptions stated): Assume a trader places a buy and then a sell (two sides total). If the provider charges commission per side and shows a raw spread per instrument, the realized cost estimate should include both commission charges plus the spread-based component. Without the commission schedule and the exact quote method, you cannot reliably compare providers.
Understand execution mechanics and where price can differ
Even if the broker publishes raw-style pricing, execution can still differ due to how orders are handled.
Check for clear explanations of:
- Order execution policy: how market and limit orders are treated during fast price changes.
- Slippage and requotes handling: whether fills can occur at worse prices than the displayed quotes, and under what conditions.
- Quote frequency and timing: whether displayed prices and the price used for execution come from the same feed and timestamp.
- Trading hours and instrument-specific behavior: whether spreads and costs change around liquidity conditions.
Material limitation: A displayed “raw spread” number is not the same as the eventual cost of your specific order, because execution quality depends on market volatility, liquidity, and order flow.
Identify limitations and failure modes
Raw spread evaluation commonly fails when the “raw” label hides real-world differences. Common limitations and risks to consider:
- Unclear fee transparency: documents may describe spread-style pricing but not fully disclose commissions, minimums, or side-by-side charges.
- Effective cost mismatch: headline spreads can look low while commissions or other charges make total cost higher.
- Execution variability: during rapid moves, the realized fill price can deviate from displayed quotes.
- Ambiguous definitions: terms like “raw,” “pricing,” and “spread” may be used without precise formulas.
Because outcomes vary with market conditions, costs, and execution, you should treat any single metric as incomplete.
Verify independently with a structured checklist
Use a verification approach that focuses on documents and repeatable comparisons.
Practical verification steps:
- Collect authoritative account documentation: commission schedule, fee list, and pricing methodology descriptions.
- Map each cost component to a specific calculation: “total estimated cost per round trip” using your assumptions (trade size, number of sides, and expected spread basis).
- Reconcile terminology: ensure “raw spread,” commission, and any “minimum” rules match the same unit conventions.
- Stress test with different scenarios: compare how fees and execution explanations change under different volatility/liquidity expectations.
Next question to ask: What exact formula does the provider use to compute the displayed spread component, and how does that interact with commission on entry and exit? If that formula is not explicit, you cannot reliably compare the model.