Market execution
Family II · Orders
Not to be confused with instant execution, best execution, execution speed.
Market execution is an order-filling method in which a broker executes a trade at the best available price in the market, without guaranteeing a specific price. Unlike methods that promise a fixed price, market execution accepts that the final price may differ from the requested price due to market movement. This approach is common in fast-moving markets and is used by many brokers for various instruments.
How market execution works
When a trader submits an order under market execution, the broker routes it to its liquidity providers. The order is filled at the current market price, which may be the bid or ask depending on the order direction. The broker does not guarantee a specific price; instead, the trade is executed at the best available price at that moment. This can result in slippage, where the execution price differs from the requested price. Slippage can be positive or negative, depending on market conditions.
Market execution is often contrasted with instant execution, where the broker fills the order at the exact requested price or rejects it. Market execution is typically used in accounts with variable spreads and may be subject to different regulatory rules depending on the jurisdiction.
Worked example
Suppose a trader places a buy order for 1 lot of EUR/USD at a market price of 1.1000. The broker routes the order to liquidity providers. Due to rapid market movement, the order is filled at 1.1005.
The trader experiences 5 pips of negative slippage, meaning the execution price is less favourable than requested. The actual slippage varies by broker, market conditions, and order size.
Key characteristics
- No price guarantee: The broker does not promise a specific execution price.
- Slippage possible: The execution price may differ from the requested price, in either direction.
- Variable spreads: Market execution is often associated with variable spreads, which can widen during volatile periods.
- Regulatory variation: Rules regarding market execution, including slippage disclosure and execution speed, vary by regulator and country.
Often confused with
- instant execution
- This is an order-filling method where the broker guarantees the requested price or rejects the order, whereas market execution fills at the best available price with possible slippage; the visible sign is the presence or absence of a price guarantee.
- best execution
- Best execution is a regulatory obligation requiring a broker or investment firm to take all sufficient steps to obtain the best possible result for clients when executing orders, considering price, cost, speed, likelihood of execution and settlement, size, nature and any other relevant consideration.
- execution speed
- Execution speed is the elapsed time between a trading platform submitting an order and the venue or counterparty acknowledging it, typically measured in milliseconds and varying by broker, order type, and infrastructure.