TL;DR — Spread markup increases your trading costs, which can cancel out the benefit of forex cashback. To protect your rebate, you need to calculate your true break-even by factoring in both the spread you actually pay and the cashback you receive.
Why Spread Markup Matters for Your Forex Cashback
Forex cashback is a rebate on the commission your broker earns from your trades. It is paid per lot, win or lose, and can significantly lower your trading costs. However, if your broker applies a spread markup — widening the raw interbank spread — your effective cost per trade rises. This markup can eat into the benefit of your rebate, sometimes entirely. Understanding how spread markup affects your break-even is essential to making cashback work for you.
How Spread Markup Works on Different Account Types
Brokers often offer multiple account types: raw spread accounts with a separate commission, and standard accounts with no commission but a wider spread. The wider spread on standard accounts is typically the result of a markup added to the raw spread. For example, if the raw EUR/USD spread is 0.1 pips, a standard account might show 1.0 pips. That 0.9 pips difference is the markup, which compensates the broker instead of a commission.
On a raw spread account, you pay a commission per lot, and your cashback is calculated on that commission. On a standard account, there is no commission, so cashback may be based on the spread markup or not offered at all. This is why raw spread accounts are often better for cashback, as the rebate directly reduces your commission cost.
Calculating Your Break-Even with Spread Markup and Cashback
Your break-even point is the number of pips you need to gain just to cover your trading costs. These costs include the spread and any commission, minus the cashback you receive. To calculate it accurately, follow these steps:
- Identify the average spread you pay on your chosen account (in pips).
- Add any commission per lot, converted to pips. For example, if commission is $7 per round turn lot and pip value is $10, that's 0.7 pips.
- Subtract the cashback per lot, also converted to pips. If cashback is $3 per lot, that's 0.3 pips.
- Your break-even is: spread + commission (in pips) - cashback (in pips).
If your broker's spread includes a markup, that markup is already part of the spread you pay. So a higher markup increases your break-even. Cashback reduces it, but only if the markup isn't excessive.
Spotting Hidden Spread Markup on Any Account
Spread markup isn't always obvious. Here are signs to watch for:
- Compare your broker's spread to the raw interbank spread. You can find raw spreads from liquidity providers or other brokers.
- Check if spreads widen significantly during news events or rollover. Some markup is normal, but excessive widening may indicate a markup.
- Review your account statement: if you see a commission charged separately, you're likely on a raw spread account with minimal markup. If not, the markup is built into the spread.
- Use a spread comparison tool or check our broker comparisons to see typical spreads for different account types.
Remember, even a small markup per trade adds up over hundreds of trades. That's why it's crucial to know what you're paying.
In our view — Traders often focus on the rebate rate alone, but the real cost is the spread plus commission minus cashback. A high rebate on a marked-up account can be worse than a lower rebate on a raw spread account. Always evaluate the total cost.
How to Reduce the Impact of Spread Markup
You can't eliminate markup entirely, but you can minimize its effect:
- Choose a raw spread account with a separate commission, as it usually has lower markup and your cashback directly offsets the commission.
- Trade during liquid sessions when spreads are naturally tighter.
- Use a cashback service like Expaid that returns most of the broker's commission to you. This effectively lowers your break-even. Check our rebate calculator to see how much you could save.
- Monitor your spreads regularly and switch brokers if markup becomes excessive. Our rate board shows current cashback rates and typical spreads.
Comparing Account Types: Spread Markup vs. Commission
| Account Type | Typical Spread | Commission | Cashback Potential |
|---|---|---|---|
| Raw Spread | 0.1-0.3 pips | $3-7 per lot | High (rebate on commission) |
| Standard | 1.0-1.8 pips | None | Low or none (markup built-in) |
As the table shows, raw spread accounts offer tighter spreads and a clear commission, making cashback more effective. Standard accounts may have no commission, but the higher spread markup can outweigh any rebate.
Where to Go Next
Don't let spread markup silently erode your profits. Calculate your true break-even and see how much you could save with cashback. Visit our rebate calculator to estimate your savings, or explore our broker rate board to find the best cashback rates. If you're ready to start earning cashback on every trade, sign up today.