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Main Dictionary E

Execution

An execution is the carriage out of an order to a security’s purchase or sell. At the moment that an order is made by the investor, it is dispatched to a broker who afterwards decides the greatest way of the order execution.

Execution explained

Brokers are legally indispensable in providing investors with the best achievable execution. Brokers inform the Securities and Exchange Commission (SEC) with the quality of execution of stocks on a case-by-case fundament and to caution customers whose orders are not converted to the best conceivable execution. Many execution providers offer fee rebates to traders if they accomplish a certain number of trades or dollars per month. This is especially crucial for impermanent trading that needs the lowest potential execution charges.

If the order implemented is a market one or can be easily converted to it expeditious, then the order has a high probability of it to be executed at the craved price. However, sometimes particularly where an enormous order is divided into several smaller ones, traders can face difficulties with the execution within the optimal price range. In that event, an execution risk is inaugurated into the platform. This risk is related to the delay between order implementation and its execution.

Order Execution process

Transmission of orders to the floor: This can take a long time, as the trades are handled by human traders. The floor broker accepts the order and executes it.

Order to market maker: Some exchange platforms such as Nasdaq have their own order. The broker-dealer is in charge of liquidity provision while an investor's broker is capable of transferring the order to one of the market makers for execution.

Electronic Communications Network (ECN): It is a sophisticated technique for computer platforms to convert orders into purchase and sell ones.

Internalization: In case of the underlying stock being held by a broker, he/she may decide to execute the order internally. This process is usually called by brokers as the internal crossing.

The best Executions

However, it is not agreed whether this happens, or brokers arrange requests for other reasons, such as to generate the more revenue as was stated earlier.

For example, if you want to buy 100 shares of stock, which is sold currently at $10. Your order will be executed at $10.15. It will lead to additional costs for you at an amount of $15. Brokers claim from time to time that they have been "fighting for an extra", but as a matter of fact, the possibility of a higher price is only a possibility, not a warranty. 

Types of Execution

Instant execution. The market orders execution is made at the cost that was set by the broker. Programme automatically includes the latest price when submitting the request for execution. Then if it is accepted by the broker begins the process of the execution. But in case of non-acceptance of the request cost, a "Requote" is performed where the broker states the cost that he/she could accept for order execution.

Request execution. Market order is accomplished with a cost that was earlier established by the broker. After their receipt, the execution of the order at the certain cost can be established or declined.

Market execution. In this mode of execution, the broker makes a decision on the total payment fee, traders are not included in this process and have no additional influence on it. When establishing an order in this mode, a trader gives a  tentative agreement to the settled on the market price. 

Exchange execution. This mode contemplates execution via sending orders to the  platform where they are output to an extraneous trading system. Then they are performed at the current market prices.

Types of orders

Limit order. A limit order allows you to set a maximum / minimum buy / sell price. If this price does not match an existing order for immediate execution, your limit order will be added to your orderbook. We recommend using limit orders to manage the price at which the order can be executed. This kind of order can only be a maker order and/or a reduction of position. Limit price should be within 15% of the limit price (price at which the position is liquidated (mark price). If the deviation is higher than 15% the order will be rejected by the trading system.

Market order. Market orders to buy or sell are executed immediately at the best price available. Use this type of order with caution as the current price could be unfavorable to you at that moment. For your protection, we will not execute your order at a price more than 1% higher than the best ask price or more than 1% lower than the best bid price. This means that your order may only be partially executed. The unfilled portion will be canceled, so there will be no remainder of your order in the orderbook. This type of order can only be a shortening of a position.

Dark pools

This term refers to the private trading platforms that are made for enormous orders execution performance that are accomplished by institutional investors. They are beloved for better price options than normal exchanges could offer. Most of the dark pools are proceed at the mid-point of the demand and supply price. That facilitates brokers in search for the best trading conditions. Some traders are suspicious of this because of transpicuousness insufficiency and absence of access to retail investors.

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