What Does Order Execution Mean?
How are orders executed? It’s a key concept every trader should understand. Order execution describes the process that follows your trading instruction (buy or sell). Once you place an order, it flows through a chain of events until a buyer or seller accepts it. Execution speed and quality can make a real difference to your trading results, especially in fast-moving markets.
Market Participants Involved
Several players work together to handle your order and match it on the market. These include:
- 🏦 Brokers: They receive your order and send it to a market or liquidity provider
- 🏛️ Exchanges: Centralised venues match buy and sell orders (e.g., NYSE, LSE)
- 🤝 Liquidity Providers: These banks or institutions offer buy/sell prices to keep markets liquid
- 💻 Market Makers: They quote constant bid/ask prices to maintain order flow
Types of Execution
1. Market Execution
Your broker fills the order at the best available price in real time. This method offers speed but may result in slippage during high volatility.
2. Instant Execution
The broker presents a fixed price. If it’s still available, your order executes instantly. If not, the broker may issue a requote.
3. Pending Orders
Your order activates only when the market meets your set conditions, such as with stop-loss, take-profit, or limit orders.
What Affects Execution Speed?
- ⚡ Market volatility: Fast price changes can delay trades or trigger slippage
- 📶 Internet connection: A weak or slow connection can affect execution time for retail traders
- 📍 Broker infrastructure: Better routing systems help process your trades faster
Slippage and Requotes
Slippage happens when you receive a different price than expected, often due to sudden market moves. A requote means the original price no longer stands, so the broker offers a new one.
Sometimes slippage can benefit you—this is known as positive slippage.
Best Execution Policy
Regulators require brokers to follow a best execution policy. That means brokers must do everything reasonable to get you the best outcome based on price, speed, cost, and likelihood of completing the trade.
Quick Recap
- ✅ Your broker and other players route your orders through various systems
- ✅ Execution types include market, instant, and pending orders
- ✅ Speed depends on market conditions, connection quality, and broker tech
- ✅ Understanding slippage prepares you for real-world trading effects
Interactive Tip 💡
Try placing a demo market order during a news event and compare it to a quiet session. Watch how slippage or speed changes. This hands-on exercise gives you insight into how orders are executed in different conditions.