It is important for Australian traders to use the right sort of forex account, and there is some dispute about which account type that is. There are two common types of accounts, the raw spread account and standard account, and commission testing and live spread can show us which of these account types has the most prohibitive forex trading costs.
For anyone in Australia who is considering forex trading, one of the most important decisions that can be made is not just which broker they choose to trade with, but what sort of account they open. There are plenty of aspects of forex trading that are crucially important for successful trading over the short or long term; things like leverage, the currency pairs available and the platform that a user uses, but the actual cost of trading can make a much bigger impact over the life of a trading account than many traders consider. Most traders will make hundreds, or even thousands, of trades over an account’s lifetime, so even small differences can make big impacts.
In Australia, with ASIC regulated brokers, there are two account types that are more common than others: The raw spread account and the standard account. While one of these account types appears initially to have lower costs, visiting a broker comparison platform that has used tools like live spread and commission testing can elucidate the truth behind which account type will actually be most cost-effective for every trader.
Let’s take a closer look at how visiting a broker comparison website that uses live spread and commission testing can reveal their true costs and at the two most common types of accounts in Australia.
Why Use Forex Broker Comparison Sites
For traders who want to find the best forex spreads Australia and get into forex trading, one of the first things they have to do is choose a broker. But how, when there are more than 30 different ASIC regulated brokers, does a trader that is just starting out make that decision? It’s simple: they use a forex broker comparison site.
Reputable broker comparison sites fill exactly the industry niche that we are discussing; they allow for new traders to make an informed decision even when they have no industry knowledge. They allow for the expertise of others to be disseminated to new traders.
Broker comparison sites often cover a wide range of things that are of interest to traders, everything from whether platforms are abiding by regulatory strictures to the types of markets they offer, the customer service, and, as you might guess from the title of this article, the spreads, commissions, and what the overall cost of trading on them might be.
Where The Numbers Come From
You might be wondering where the numbers that broker comparison sites use come from, a reasonable question. Reputable forex broker comparison sites like Compare Forex Brokers don’t pull the numbers they offer out of thin air; they perform rigorous testing to be able to provide accurate and useful information to their customers.
When testing different brokers and different account types, live spread testing is one of the most important types of testing that a comparison site can perform. This is because spreads naturally change according to the market over time, and comparison sites can build a good picture of the sort of spreads that are typically offered by a broker by monitoring the spread prices live, as they change. Commission testing is equally important, as it allows broker comparison sites to build an accurate picture of the cost of trading on a platform when using a raw spread account.
When combined, the numbers generated from both of these kinds of testing can allow a broker comparison site to present a realistic picture of the sort of trading costs that should be expected, regardless of which sort of account a trader might open.
The Raw Spread Account
Raw spread accounts are touted as being the account type offered by ASIC regulated brokers that provides traders with the smallest mark-up on market pricing. But this comes at a cost, with the broker charging separate commissions on each trade.
So in a raw spread account, you might see the EUR/USD spread changing between 0.0 and 0.2 pips when the market is particularly liquid, but every unique position that a trader holds is charged a separate commission. This type of commission is named a round turn commission, and it is charged to cover the opening and closing of a trade.
While more commissions might sound like a bad thing, many traders like using a raw spread account because it allows them to better calculate how much commission they have paid, and they offer a higher level of transparency for market pricing.
What Then, Is A Standard Account?
The other common type of account offered by ASIC regulated brokers is the standard account. Standard accounts don’t charge separate commission fees; instead, the broker incorporates their fees directly into the displayed spread.
This means that in a standard account, the EUR/USD spread of 0.2 might appear as 1.0 or 1.2 pips. This type of account is most typically enjoyed by newer traders, as it offers a much simpler pricing structure. However, just because it is simpler doesn’t mean it is more cost-effective.
