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Order execution isn’t as easy to understand as it seems at first glance. Not seldom investors and traders think their order is immediately executed when they click on “execute order”. As a matter of fact, there are various possible forms in which an order can be filled and when it actually happens. Moreover, the timing of your order execution can affect how much the transaction of this order actually costs.
Many people believe that your trading account connects directly to the markets. However, this is not true. Whenever you place an order, it first goes to a broker who then reviews the size and availability of the order to decide which direction fits best for the order. This goes in numerous possible outcomes:
One of them is called “Limit Order”, meaning an order carries out a transaction at a specified price or lower than that, but never higher, which explains why the term is called “Limit Order” with the word ‘limit’ referring to the particular price.
Another form is the “Pending Order”, which means an order from the client is set to be executed once the price has reached the demanded price of the order and can be either a limit buy, stop buy, limit sell, or stop sell order or a simply a stop-limit order.
“Closed Position” refers to the order position which is not open anymore but fully executed.
“Execution” means the fulfilling of the customer’s orders on the trading platform, where the company behind the platform acts on behalf of the users to execute their orders/transactions, which happens via the Execution Venue.
“Execution Venue” describes the object with which client orders, assets are set, and to which the company sends customer orders for execution.
“Instant Execution” refers to a form of execution method where the order is executed to the most newly available price. Therefore, if the demanded price is not available, the currently available price will be transmitted to the client to approve execution (requote).
The terms “Market Maker / Liquidity Provider” describe the company that gives quotes for both buyer and seller in a financial instrument to the corporation.
Moreover, “Market Execution” determines that the order is executed depending on the depth of the market. The order will be executed at the best available price in the market.
Thus, If you put a “Market Order”, it means that your order will be executed at the best available price.
“No-Dealing Desk Execution” means the order will be executed with no dealing desk being involved in the trade and that the customer’s orders are transmitted to the interbank market.
As a consequence, one might ask: Is Order Execution Important?
The significance and influence of order execution depends on the conditions, in particular, the type of order you submit. As an instance, if you place a limit order, you only risk that the order might not be filled. In contrary, if you are placing a market order, speed and price execution become increasingly important.
Because of the fees, order execution is more important to active traders who scratch and claw for every percentage they can get.
To conclude, order execution is very important for active day traders and becomes less important for long-term investors. In any case, understanding order execution is as important as keeping up with the forex news.
