Cashback vs. Lower Spreads: The Math Most Traders Ignore
In the fast-moving world of forex and CFD trading, reducing costs is one of the few things traders can control. Two of the most popular methods are cashback rebates and lower spreads. Both seem like effective ways to save money—but choosing between them isn’t as straightforward as it appears.
The problem? Most traders don’t run the numbers. They go with whatever sounds better—“Get paid per trade!” or “Tightest spreads in the market!”—without realizing that their trading style, volume, and frequency dramatically affect which option saves more.
Let’s dive into the math behind the decision, and uncover which path actually boosts your bottom line.
Understanding the Two Models
1. Lower Spreads:
A tight spread means a smaller gap between the bid and ask price. This directly reduces the cost of entering and exiting a trade. Lower spreads are ideal for scalpers and high-frequency traders who depend on precision and tight margins.
2. Cashback Rebates:
Cashback rewards you with a fixed rebate per lot traded—usually a few dollars—regardless of your trade’s outcome. The more you trade, the more you earn back in rebates. It’s a post-trade refund, not an upfront discount.
The Key Differences
| Factor | Lower Spreads | Cashback Rebates |
|---|---|---|
| Timing | Instant cost reduction | Rebate paid after trades |
| Visibility | Built into pricing | Tracked separately |
| Volume-Based | No tiers, just savings | Higher volume = higher earnings |
| Psychological Impact | Less emotional | Can encourage overtrading |
A Simple Math Example
Imagine you trade 100 lots per month.
- Broker A offers 0.8 pip spread with no cashback
- Broker B offers 1.2 pip spread, but pays $5 per lot in cashback
Now calculate:
Cost with Broker A (lower spread):
0.8 pips × 100 lots × $10/pip = $800
Cost with Broker B (higher spread + cashback):
1.2 pips × 100 lots × $10/pip = $1,200
Minus cashback: 100 × $5 = $500 rebate
Net cost = $1,200 – $500 = $700
📊 Winner: Broker B (by $100)
But flip the numbers and the result changes. If Broker B only gave $3 cashback, the net cost would be $900—more expensive than the lower spread option.
The Problem Most Traders Ignore
Most traders don’t calculate true cost per trade. They look at spread or rebate in isolation, not realizing how one affects the other. They also forget to factor in:
- Lot size and trade frequency
- Type of account (ECN vs. standard)
- Slippage and execution speed
- Instrument being traded (majors vs. exotics)
In many cases, a trader might be paying more through wider spreads just to earn cashback, thinking it’s a better deal—when in reality, it isn’t.
When Cashback Wins
✅ If you’re a medium-to-high volume trader
✅ If you’re not scalping and hold trades longer
✅ If you use a standard account where spreads are already wider
✅ If the cashback rate per lot is generous (e.g. $5–$10)
When Lower Spreads Win
✅ If you’re a scalper or intraday trader
✅ If every pip counts in your strategy
✅ If you use tight SL/TP ratios
✅ If your volume is moderate or inconsistent
Bonus Tip: Combine Both (If Possible)
Some brokers and rebate partners offer tight spreads + cashback, especially on ECN accounts with commission-based pricing. This is the best-case scenario—reduced execution cost + partial rebate—but it’s rare and usually comes with conditions.
Final Thoughts: Run the Numbers, Don’t Guess
Choosing between cashback and lower spreads shouldn’t be a guess—it should be a calculation. Use a Cost Comparison Calculator to plug in your:
- Monthly trade volume
- Lot size
- Average spread
- Rebate per lot
Then compare your net trading cost under each model. What sounds cheaper might not actually be. The math doesn’t lie—but ignoring it will cost you.