DEFINITION OF EXECUTION: In trading, Execution means the fulfillment or execution of buy or sell orders.
Instant Execution
Instant Execution is a execution process goes according to the price you want. In this type of execution, the broker take full responsibility for running commands on your price either sell or buy, or even not at all. Fast or slow you want the execution process entirely in the hands of brokers. Instant execution usually for market maker / dealing desk broker.Example: You click the "buy" on GBP/USD at 1.58000 level. Normally after a broker receives your order then they will decide whether you will get your desired transaction level or not. You will get the right transaction at that price if you're lucky, even a second after the execution taken the price moves up or down.
- Disadvantages: Requote (Order/ buy-sell orders will be rejected if the price is volatile/ during high impact news)
- Advantages: No Slippage (Price will be executed right on the numbers you want, without going its price slippage)
WEAKNESSES AND BENEFITS OF INSTANT EXECUTION
Instant Execution can be translated as precise execution. Means, broker will execute your orders right at your price, no slippage.
Example
Let's take a look at detail the mechanism of the process with an example: At 15:16:03 you press the Buy EUR/USD at 1.32059 price. Broker received and executing your order, this means that the broker has started processing your query and try to trade with you. This process takes time, typically 0.1 to 5 seconds. During this time, the price may go up, down or stay.
Possible examples
Let us consider each of the following examples of instant execution
- Price has not changed: In this case the order will be executed at the requested price of 1.32059.
- Prices have come down or up: Means, if the broker want to receive the order at 1.32059, then we can get the difference spreads, could be bigger spread than usual. It should be noted that if the price has moved too far, there is a possibility that the broker does not execute your order (Requote)
Benefits of Instant Execution?
No Slippage (Price will be executed right on the numbers you want, without slippage)
The disadvantages of Instant Execution?
Requote (Order / buy-sell orders will be rejected if the price is volatile / during high impact news)
Market Execution
Market Execution is a process of execution according to real market prices. Brokers who use this system will immediately throw the transaction to liquiditor provider. With this system, execution order obtained much faster and real than instant execution, but vulnerable to slippage. Instant execution usually for STP / DMA broker.Example: You click "buy" on GBP / USD at 1.58000 level, if the price does not change then you will get the prices according to what you want. But if prices change immediately after you click on that level example: 1.58000 becomes 1.58100 then you got slippage
Advantages: No-Requote (No requotes on market execution) Disadvantages: Slippage (Prices will terpleset (slippage) depending on market conditions)
- Advantages: No-Requote (No requotes on market execution)
- Disadvantages: Slippage (Price will be slip depend on market conditions)
WEAKNESSES AND BENEFITS OF MARKET EXECUTION
If the broker uses execution system like this, it almost certainly order you will be 100% successful (No-Requote), but may not be exactly on target that you see on the screen, but with the real price on the market. Prices may be better or worse than those seen in the graphic.
Example
Let's take a look more at detail the mechanism of the process with an example:
At 16:19:23 you click Buy GBP/USD at the price 1.54282 and Brokers received and execute your order. This means that the broker has started processing your requests and try to bring your transaction to liquiditor (LP). Meanwhile, the price can go up, down or stay in place.
Possible examples:
- Prices have not changed. In this case, your order will be executed at a price of 1.54282
- Prices dropped to 1.54202. In this case, your order will be filled at the price of 1.54202 and your order will be executed at 8 pips better than you planned.
- Price has gone up to 1.54361. In this case, your order will be filled by price of 1.54361 and your order will be executed by 7.9 points worse than you planned.
Market Execution Advantages: No-Requote
No-Requote means no denial order on execution. Orders will still be executed either at a lower price or at a higher price than your original order.
The disadvantages Market Execution: Slippage
The impact of no-requotes is slippage, Order will still be executed either at a lower price or at a higher price than your original order.
Understanding Slippage and Re-quotes
As financial markets brokerage firms aim to provide quality execution when handling customer orders across various asset classes and trading instruments, the varying types of orders and exchange rules or brokerage policies may drastically differ from one venue to the next, and thus can greatly affect the function of orders and rules governing how such orders are handled.One common challenge is executing an order at the rate that was requested by the client –such as in the case of a limit order, or the next available market rate as in the case of a market order.
The Essence of Slippage: Change in Rate Between Requested Price and Executed Price
Regardless of the order type and the rules of the exchange or broker, if the venue is not Able to execute the order at the price requested and a worse price is provided, this is Referred to as negative slippage.In the case of a price improvement or better-than-expected rate than was requested, the slippage is Described as positive.
Essentially, the slippage is the difference between the rate requested and the rate is executed, and is typically due to the fact that prices across various financial instruments Often change Rapidly in milliseconds or less, sparked by trading volumes, market volatility and the large size of markets ( and the Accompanying large number of of participants). Thus Spake slippage can occur even at the most technically sophisticated brokerages, and not a limitation in a system providers.
Latency and Fast Markets
The specific reason for the slippage occurring is a time-delay between when an order is submitted and when an order is received, and to when an order is processed, even when this is done electronically - at the speed or light.The internet speed / quality and geographic distances between servers, as well as the time needed by the servers to process such operations, all add to the potential latency that can cause rates to change, and Tus cause a trade to be slipped either positively or negatively ,
In the event a shorter period of time, a rate can have already changed a moment after it was displayed, making it a no-longer executable or no-longer valid (and Thus Spake a stale price -that would cause either slippage or a re-quote to occur).
In the case of a broker providing only negative slippage and never providing positive, Often such practice is frowned upon by regulators and Described as Asymmetrical slippage. If slippage is to occur, it must be symmetrical, so the positive slippage should be passed on to customers- if the negative slippage IS ALSO passed on.
Requotes Are Similar to Slippage, Except Trader Decides Whether to Accept or Not
Similar to Slippage, a re-quote Occurs when instead of slipping a trade, the broker presents the customer with the option to execute the trade at a different rate than the one they requested- when in such cases the rates originally requested are no longer available , For example, if the EUR / USD rate is Bid 1.3422 and Ask 1.3423, and a client submits a market order to buy at the ask price, the trading platform may re-quote the trade automatically at 1.3424 - if the rate has changed around the time the trader clicks the submit / enter to confirm the original order (submit it for execution).While the details of this process may vary across brokers and depend on their specific policies, the essence is the same in how the re-quoted rate may be more favorable or less-favorable (negative or positive) than the original rate requested.
When dealing with complaints related to slippage or re-quotes, the Financial Commission will examine the rate logs, trade logs, tick-price history or other such data is provided by the member brokers in order to ascertain the degree of slippage if any and whether it was positive / negative, as well as if the slippage was justified (Comparing rate providers). Finally, slippage if and when it should occur, must be symmetrical for the sake of providing clients with fair dealing.
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