Dynamic markup during volatility

[Fairman]

Dynamic markup during volatility

Some brokers add a markup to the raw price, and the markup is not constant. When volatility rises, the markup rises.

On a calm day, a raw spread of 0.2 pips might become 0.8 with the markup. During a news event, the raw spread jumps to 3 pips and the markup becomes 1.5, giving 4.5.

The reasoning from the broker's side is risk management. Higher volatility means a greater chance of losses on the trades they take on. The markup acts as a buffer.

For traders, it means the cost is highest exactly when the strategy is most active, if the strategy relies on volatility.

Checking requires comparing the broker's feed with a raw feed from a different source at the same times. The gap between the two shows the markup.

Brokers that disclose this practice in their execution policy deserve some credit. Many do not.

How does the spread difference between a raw feed and the broker's feed change across volatile and calm periods?