Best trade execution principles suggest an optimal combination of the best price for a trade with the shortest time span. However, these parameters in real trading conditions encounter with such factors as market volatility, trading volume and system availability. In the fast and changing market conditions price can undergo dramatic changes, which will cause difference between the initial price (available at the time the order is submitted) and the execution price. This means price improvements do not necessarily take place, and, moreover, they cannot be guaranteed.
Order execution speed basically refers to the time between the sending of orders to a broker and receiving the answer from it, by filling orders or in other words, opening positions or placing pending orders. When a trader presses the buy/sell button, the broker takes their order and tries to find a match with it through its liquidity providers. This process will normally take milliseconds depending on the quality of the brokers’ software and the strength and number of the liquidity providers of the brokers. If a broker uses state of the art technology for running its software, the execution speed of its platform will increase.
However, best execution issue cannot be just stripped down to the "best price" case. On the buy side, market participants will look at the total cost of the trade – to execute, allocate and settle that trade. Moreover, operational risks in movement of cash between counterparties are also taken into consideration here. Brokerage firms should do their best to provide consistent and accurate pricing to the clients, along with the time of execution as short as possible.
TCA (Transaction cost analysis) certainly has to be mentioned here too. The factors that support the implementation of this term in forex are multiple, and one of the most influential is recent technological advancement, which has made hi-fi transaction data available. Another classification divides forex execution into two types: No Dealing Desk (NDD) and Dealing Desk. Conditions for best trade executions need professional evaluation as they come as a complex of performance characteristics.
Order execution quality may be complicated to comprehend and no universal metric exists in order to conduct like-to-like comparisons. For everyday investors and active traders there are ways to keep execution costs down. Traders should focus on what they trade (security chosen), when they trade (time of day), and how they trade (size, order type).
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