Spread markup in forex is the additional amount a broker adds to the raw interbank spread to generate revenue. When you trade, you see a difference between the buy price (ask) and sell price (bid) – this is the spread. A portion of this spread represents the actual market spread from liquidity providers, while the markup is what your broker layers on top. Think of it like a retailer buying products wholesale and then adding a margin before selling to customers.
The markup varies by broker and their business model, with some charging minimal markups and transparent pricing, while others incorporate larger markups into their spreads. Market makers set these bid-ask spreads while providing liquidity to keep currency trading fluid in the forex market. Beyond spread markups, brokers may also generate income through overnight financing fees charged when positions are held past the daily rollover time. This markup directly affects your trading costs, as you pay it every time you enter a position, making it essential to understand when evaluating broker pricing structures.
In short: Spread markup is the extra cost your broker adds to the raw market spread as their profit margin on each trade.
Example in Action
Let's say you want to buy USD/ZAR and your broker quotes a bid price of 18.2500 and an ask price of 18.2520. The spread markup is 0.0020 (or 20 pips), which represents the broker's fee built into the trade.
If you trade one standard lot (100,000 USD), you would pay approximately 200 ZAR in spread costs just to enter the position (0.0020 × 100,000 = 200). This means the market must move at least 20 pips in your favor before you break even on the trade.
The bid-ask spread represents the cost of executing trades in the forex market, as you pay the higher ask price when buying and receive the lower bid price when selling. Understanding how the spread impacts trade profitability is essential for calculating your actual returns and managing trading costs effectively.
Why It Matters
For African traders operating in markets from Lagos to Nairobi, from Cairo to Cape Town, spread markup isn't some abstract concept—it's the silent tax collector that shows up on every single trade.
It determines whether that Johannesburg day trader stays profitable or bleeds capital. Whether that Kampala scalper can survive on thin margins. It's the difference between building wealth and funding someone else's yacht.
Common Questions
Do African Brokers Charge Higher Spread Markups Than International Brokers?
African brokers don't necessarily charge higher spread markups than international brokers. Regulated African brokers, particularly those under South Africa's FSCA, often offer competitive spreads comparable to global brokers, with markups depending on account type and market conditions.
Can I Negotiate Lower Spread Markups With My Broker in Nigeria or Kenya?
Yes, negotiation is possible, especially for high-volume traders in Nigeria and Kenya. Brokers may reduce spread markups for clients demonstrating consistent trading activity above $10,000 monthly volume, or offer VIP account upgrades with lower spreads.
How Do I Calculate My Actual Trading Cost Including Spread Markup?
To calculate actual trading cost, a trader multiplies the spread in pips by the pip value and lot size, then adds any commission charged. This reveals the true cost per trade before profit or loss.
Are ECN Accounts With Lower Markups Accessible to Traders in Ghana or Uganda?
Yes, ECN accounts with minimal spread markups are accessible in both Ghana and Uganda through international brokers like Exness, Fusion Markets, Pepperstone, and IC Markets, offering spreads from 0.0 pips with commission-based pricing and fast online account opening.
Do Spread Markups Increase During African Market Hours or Local News Events?
Yes, spread markups typically increase during African market hours due to lower liquidity and thinner order books. They widen further around local African news events, particularly for exotic pairs like USD/ZAR or EUR/NGN, as brokers manage heightened volatility risk.
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