When a retail broker advertises a 0.8 pip spread on EUR/USD, the number is technically accurate and commercially meaningless at the same time. It is accurate because that is what you will often see on the platform during London hours. It is meaningless because it is not the number that determines what you actually pay to trade. I spent years on the side that builds these numbers. This is how it actually works.
Every retail broker faces the same commercial problem. They need to quote a price that looks competitive in a Google search, and they need to extract enough revenue from that price to cover liquidity costs, technology, licensing, marketing, and profit. The spread is the primary lever. Commissions on standard accounts are usually just a way to relabel part of the spread so the headline number looks smaller.
Here is what actually happens when you click Buy on EUR/USD.
The broker receives a raw price stream from one or more liquidity providers. In practice this is a mix of tier-one banks, non-bank market makers, and aggregators like Integral, oneZero, or PrimeXM. That raw stream has its own spread, which on EUR/USD during active hours sits somewhere between 0.1 and 0.3 pips. That is the broker's cost of goods.
Before the price reaches your platform, it passes through a pricing engine. The engine applies a markup. On a "standard" account advertised at 1.0 pip, the markup is roughly 0.7 to 0.9 pips on top of the raw 0.1 to 0.3. On a "raw" or "zero" account advertised at 0.0 to 0.2 pips plus commission, the commission (often $3.5 per side per lot, so $7 round turn) is the markup rebuilt in a different form. The two models are mathematically close. One just looks tighter in marketing.
This is stage one. The markup.
Stage two is order routing. When your order hits the broker, it goes into one of two buckets. Either the broker passes it to a liquidity provider and earns only the markup (A-book), or the broker warehouses the trade internally and takes the other side themselves (B-book). Most serious retail brokers run a hybrid model. They profile clients. Profitable or high-volume clients get routed to A-book. Unprofitable clients stay in B-book. The spread you pay does not change based on routing. But the broker's revenue from you does, dramatically. In B-book, your loss is their revenue on top of the spread. In A-book, they only keep the spread.
This is why the spread alone tells you almost nothing about your actual cost. The same 1.0 pip can represent a broker making 0.8 pips of markup, or a broker making 0.8 pips of markup plus your entire stop-loss distance when you get liquidated.
Stage three is where spreads move during news and thin liquidity. Raw spreads from liquidity providers widen fast. On NFP release, EUR/USD raw can jump from 0.2 pips to 4 or 5 pips for several seconds. Brokers have three options at that moment. They pass the full widening to you, cap it by eating the difference themselves, or pull quotes entirely. What most retail brokers do is pass the widening and add their usual markup on top. This is why a "0.8 pip typical spread" broker can show you 6.2 pips on EUR/USD at 13:30 UTC on the first Friday of the month. It is not a glitch. It is the model working exactly as designed.
Stage four is the one most retail traders never notice. The spread is also an execution filter. Stop losses and take profits are triggered against the bid or ask, not the mid. A 1.2 pip spread that widens to 3.0 pips for 200 milliseconds on a retail platform can sweep every stop loss sitting inside that range, then snap back. On genuine A-book flow, this is mostly a function of market depth. On B-book flow, it is also a function of how aggressive the broker's execution engine is configured to be. There is a reason "stop hunting" feels real to some traders and invented to others. It depends entirely on who you trade with and which bucket your account sits in.
I factor this into every trade I take. Which broker, which account type, whether a news window touches my stop placement. It is not caution for its own sake. It is just knowing how the infrastructure works.
When you compare two brokers, the advertised spread gives you almost no useful information. What you need to know is the markup structure, the behavior during news, the execution logic at the stop-loss level, and whether your flow is being internalized. Most of this is measurable if you know what to look for. The next few issues hand you the tools to look.
Spread is the sticker price. Swap is the rent you pay while you sleep. That is next.
Key takeaways
Treat any advertised spread as a marketing figure, not a cost figure. The real cost is markup plus commission plus execution slippage during volatility.
A "raw" account with commission and a "standard" account with a wider spread are usually the same economics dressed differently. Calculate your round-turn cost in dollars per lot before deciding.
Test your broker's spread behavior during the first second of NFP or ECB. That thirty-second window tells you more about how they treat you than any review site.
Resources & tools
Myfxbook Spread Comparison: live spread tracking across brokers, useful for spotting who widens aggressively during news: https://www.myfxbook.com/forex-broker-spreads
A clean, free Excel template for tracking round-turn costs across your broker accounts. Reply to this email and I will send it.
DISCLAIMER
This newsletter is for educational and informational purposes only. Nothing herein constitutes investment advice, a recommendation to trade, or an endorsement of any specific broker or financial product. The author writes under a pen name and has no undisclosed financial relationship with any broker mentioned. Trading forex and CFDs involves substantial risk of loss and is not suitable for all investors.