How Spreads Impact Position Size

The Impact of Broker Spreads on Position Size Calculations

So let’s talk about spreads… Broker spreads are often massively overlooked, and often brokers want to keep it that way, especially when it comes to position sizing.

Spreads impact position sizing by entering and / or existing your trade at a higher or lower price vs what you intended, often represented by you initially starting your trade in a loss, or exiting your trade for slightly less profit than what you’d expected.

Whether you’re using a spread-based account or a commission-based model like a Raw or Razor account, your costs will shape your risk, returns, and ultimately the outcome of your trade. We’ll break it all down clearly in this article.

What Is a Spread and Why Does It Matter?

In simple terms, the spread is the difference between the buy (ask) and sell (bid) price that your broker quotes for a given instrument. It’s essentially the fee you pay every time you enter a trade. In a traditional spread-based account, this fee is built into the price, so when you open a trade, you’re immediately in a ‘small’ loss equal to the spread.

Note: the reason I put ‘small’ in quotations as the spread cost is dependent on the size of your position, so for a large trade this could end up not being a ‘small’ loss…

Let’s say you’re buying EUR/USD and your broker quotes a spread of 1.2 pips. If the current price is 1.1000, you’ll be able to buy at 1.1001.2 and sell at 1.1000. That 1.2 pip difference is the broker’s fee. Sounds simple but imagine you have a contract value of £100,000, that 1.2 pip difference really starts to impact your trade profit. That’s why having a grip on these fees is so important.

How Spreads Affect Entry and Exit

When you calculate your trade size using a tool like a Position Size Calculator, the spread directly impacts the level at which your order is executed, and therefore your real risk.

A wider spread means a higher cost to enter the trade and more price movement required just to break even.

If you set your stop-loss at 50 pips and the spread is 3 pips, the actual distance the price must move against you to hit your stop is only 47 pips. It shortens your runway and magnifies the true risk per pip. Your take profit is also affected—it has to move further to cover your spread and generate a meaningful profit.

Raw / Razor Accounts vs Spread-Based Pricing: What’s the Difference?

Most brokers offer two types of pricing accounts:

1. Spread-Based Account This is what most beginners use. There are no added commissions, but the spreads are wider. For instance, on EUR/USD you might see a 1.0–1.5 pip spread. This spread is baked into every trade you take – this is a double edged sword if you trade at a much larger size, you end up paying more.

2. Raw or Razor Account (Commission-Based) This account gives you access to the market with minimal spreads, sometimes as low as 0.0 to 0.3 pips on major pairs. Instead of paying via the spread, you pay a flat commission, usually charged per trade or per lot. For example, £4.50 per lot round-turn.

Here’s what that means for you:

• On a spread-based account, you might pay ~1.5 pips to enter and exit.
• On a Raw account, your spread could be 0.2 pips, but you’ll pay ~£4.50 commission.

This affects how your position size calculator interprets the total cost of the trade. A tighter spread means more precise entries and better risk-reward opportunities, but the commission must still be accounted for.

Using the Calculator to See It in Action

On the Position Size Calculator, once you’ve entered your trade details like stock price, stop loss, account balance, and risk percent, you’ll see the estimated spread cost included in the summary.

For example, in a leveraged stock trade:

• Entry price: £120
• Stop loss: £112
• Shares: 16
• Risk: £400
• Spread cost: £1.92

The calculator adjusts for your actual position size, factoring in both spread and leverage. If you were on a commission-based broker, that £1.92 might be swapped for a flat commission fee—but your spread would likely be much smaller, making your entry more efficient.

Why This Matters for Position Size

When your costs per trade are higher (either via spread or commission), your margin for error shrinks. This can mean:

• Needing wider stops to accommodate price noise.
• Taking smaller position sizes to maintain your risk limit.
• Adjusting your take profit to keep your risk-reward ratio favourable.

The calculator makes all of this visible, but only if you’re aware of the cost inputs. If you ignore your broker’s spread or fee structure, your trades might not perform as expected—even if your strategy is sound.

Which Is Better: Spread-Based or Raw / Razor Accounts?

It depends on your strategy:

• Scalpers prefer Raw accounts with low spreads. They rely on tight entries and fast exits, where every pip matters.
• Swing traders might prefer spread-based accounts if they hold trades longer and aren’t concerned about a few extra pips in costs.

Personally, when I began swing trading forex, I used a spread account because it was simple. But as I transitioned to shorter-term setups, I switched to a Raw account to keep spreads tight and execution cleaner, even though I paid a commission.

Final Thoughts

Spreads and commissions may seem small, but they have a massive impact on how you calculate position size, plan your trades, and ultimately manage risk. Using a Position Size Calculator helps make these costs clear and measurable.

The more precise you are with your inputs, including your broker’s fee model, the more accurate your sizing and risk calculations will be. That accuracy can be the difference between steady growth and frustrating losses.

Always know your broker’s pricing model, understand how it affects your trade costs, and plug that data into your calculator to trade smarter, not just harder.