Definition
ExecutionExecution is the process of filling a trade order: the price, speed and method by which your buy or sell instruction becomes an open or closed position.
Example
You click buy on EUR/USD at 1.0852, but a fast market means the order fills at 1.0853. The 1-pip difference is a result of how and when your order was executed.
In detail
When you send an order, it has to be matched with a counterparty. How that happens depends on the broker's execution model and on the order type you choose.
Common execution models
- Market execution: your order fills at the best available price when it reaches the market. You are guaranteed a fill (in normal conditions) but not a specific price, so slippage is possible.
- Instant execution: the broker tries to fill at the price you saw. If the price has moved, you may get a "requote" asking you to accept a new price.
Brokers may also act as a market maker (taking the other side of your trade) or pass orders on to external liquidity providers. Many use a mix. Their disclosure documents usually describe which approach applies.
Order types
- Market order: fill now at the current price.
- Limit order: fill only at a specified price or better. Used for take-profit levels and for entering on pullbacks.
- Stop order: becomes a market order once a trigger price is reached. Used for stop-losses and breakout entries, and it can slip.
Why it matters
Execution quality is a hidden trading cost. Two traders using the same strategy can get different results if one consistently gets worse fills. Factors that affect execution include:
- Market liquidity at that moment
- News releases and session opens, when prices move quickly
- Order size relative to available volume
- Internet latency and server distance
Example
Assume a trader places a buy stop at 1.2700 on GBP/USD before a data release. The price jumps from 1.2690 straight to 1.2712. The stop order triggers and fills at the next available price of 1.2712, which is 12 pips worse than planned. On 1 standard lot, that is $120 of extra cost. A buy limit at 1.2700, by contrast, would not have filled during that jump at all.
Reviewing your actual fills in a Trading Journal helps you understand your real execution costs.
Last updated
Related terms
- SlippageSlippage is the difference between the price you expected for an order and the price at which it was actually filled. It can be negative or positive.
- SpreadThe spread is the difference between the ask (buy) price and the bid (sell) price of a currency pair. It is a built-in cost paid on every trade.
- LiquidityLiquidity is how easily a currency pair can be traded in size without moving its price much. High liquidity usually means tighter spreads and smoother fills.
- Ask PriceThe ask price is the price at which a broker or market maker will sell a currency pair to you, so it is the price you pay when you open a buy trade.
- Bid PriceThe bid price is the price at which the market will buy a currency pair from you, so it is the price you receive when you sell or close a long trade.