Order execution
Family II · Orders
Not to be confused with market execution, instant execution, best execution.
Order execution is the process by which a broker or venue receives a client order and carries it out, determining the price, timing, and manner in which the order is filled or rejected. It covers the entire path from order submission to final confirmation, including any internal handling, routing, and matching. Execution quality is assessed by factors such as speed, price accuracy, and transparency.
Execution models
Brokers and venues use different execution models, and the model affects how orders are handled:
- Market execution: the order is filled at the best available price in the market, with no requotes; slippage is possible.
- Instant execution: the order is filled at the price requested by the client, or the client is offered a requote if that price is no longer available.
- Internal matching: the broker matches client orders against other client orders or takes the other side itself, often within a specified price range.
- Routing to external venues: the order is sent to an external market or liquidity provider for execution.
Each model has different implications for slippage, requotes, and the likelihood of price improvement. The specific model used by a broker is disclosed in its execution policy, which varies by broker and jurisdiction.
Worked example
Suppose a client places a buy order for 1 standard lot of EUR/USD at a market price of 1.1050. The broker's execution process determines the actual fill price.
The difference between the requested and fill price is slippage, which can be positive or negative depending on market conditions and the execution model.
Factors affecting execution
Execution quality depends on several factors, including market liquidity, volatility, order size, and the technology used by the broker. Execution speed is often measured in milliseconds, but the exact speed varies by broker and market conditions. Regulatory requirements for best execution also differ by jurisdiction. For example, in the European Union, MiFID II imposes best execution obligations, while in the United States, the SEC and CFTC have their own rules. These requirements are not universal and should be verified with the relevant regulator.
Often confused with
- market execution
- Market execution is a specific execution model where orders are filled at the best available market price without requotes, whereas order execution is the broader process of carrying out any order. The visible sign is that market execution always results in a fill at the prevailing market price, while order execution may involve requotes or other handling.
- instant execution
- Instant execution is an order-handling model in which a broker fills a client order at the exact price quoted at the moment of submission, rejecting the order if that price is no longer available rather than filling at a different price.
- 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.