Broker markups are a critical component of your overall trading costs in the Forex market. Essentially, a markup is an additional amount that a broker adds to the raw spread or commission they receive from their liquidity providers. This markup represents a significant portion of the broker's revenue and directly impacts the price you pay for each trade.
When you place an order, your broker connects to liquidity providers to find the best available price. The difference between the bid and ask price offered by these providers is the raw spread. A broker then applies a markup to this raw spread, presenting you with a wider spread than they received. Alternatively, they might charge a direct commission per trade, which can also include a markup component.
Brokers have different strategies for applying markups, often depending on their business model. For brokers operating on an A-book model, where client orders are passed to the market, markups are a primary source of profit. They earn on the spread differences (markups) and commissions (between client commission and Liquidity provider commission) [S2].
This is the most common form of markup. The broker widens the raw bid-ask spread. For example, if a liquidity provider offers a EUR/USD raw spread of 0.1 pips, the broker might add a 0.5 pip markup, presenting a spread of 0.6 pips to their clients. This means that for every round-turn trade, you pay an extra 0.5 pips compared to the raw market price.
Some brokers charge a fixed commission per lot traded. In this model, a markup might be included within that commission. For instance, if a liquidity provider charges the broker $2 per lot, the broker might charge the client $3 or $4 per lot, with the difference being the markup. This is distinct from spread markups but serves the same purpose of generating revenue for the broker.
It's worth noting that some providers offer different trading conditions, with some having higher commissions or spreads. A sophisticated setup allows brokers to set different markups on different providers to compensate for these differences [S1].
Markups directly increase your trading costs. For active traders, even a small markup can accumulate significantly over many trades, impacting profitability. Higher markups mean:
Understanding these costs is crucial when comparing brokers. What might appear as a small difference in spread or commission can translate into substantial savings or extra expenses over a month or year of trading. To get a comprehensive view, consider reviewing
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