CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 51% and 89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
What is Market Execution?
In this type of execution, orders are filled at the next available market price without any requotes. Most of the ECN /STP brokers offer market execution for clients to ensure a dynamic trading environment. Many brokers offer the market execution model to their customers to ensure a trading environment without requotes.
Instant Execution
When orders are processed by the broker's price feed, it is known as instant execution. This type of execution is often offered by market-maker brokers, and requotes are commonplace. This means that if the desired price level is not available at the time of trade execution, then the broker will requote with the newly available price level.
Market Execution vs. Instant Execution
Both of these models are very popular amongst the retail traders, but there are pros and cons for the two systems. The market execution model gives clients a more fluid price, and the order is guaranteed to be filled at the best available market price at the time of execution.
Most brokers charge a small commission and/or offer a variable spread trading account for this model. However, because prices are subject to continual fluctuations, this means that the order may not be filled at the price the client had initially requested, and significant slippage can be experienced at the entry and exit points. Sometimes the slippage might go in a trader's favour, however negative slippage can jeopardise an entire trading plan.
Compared to market execution, the instant execution model can be much slower. Typically, it can take 1-3 seconds or more to confirm orders. During high levels of market volatility, the trader will receive repeated requotes to approve before the order can be placed, making it extremely difficult for a trade to be opened at the desired price. In many cases, the instant execution model is offered for fixed spread trading accounts. Wide spreads are an indicator of large broker fees, and there is no assurance that a trader will have access to the best available price feeds in the market.
Pros and Cons of Market Execution
Pros
- Usually orders will be filled within a fraction of a second.
- No requotes, even during highly volatile market conditions.
- Guarantee that orders will be filled at best available market price.
- Positive slippage – the chance of getting a better price for the executed order than the price expected.
- A trading account which offers market execution typically comes with variable spreads and low commission.
-
Cons
- Slippage is common in market execution and this can often be negative.
- Sometimes there will be a significant deviation from the desired entry level due to high market volatility.
- Stop loss and take profit levels need to be set after the execution of the trade.
Pros and Cons of Instant Execution
Pros
- Trading costs are fixed as a fixed spread trading account is usually offered.
- Predefined stop loss and take profit levels can be set during trade execution.
- Orders can be cancelled when faced with disagreeable requotes.
Cons
- Orders are filled with a significant delay.
- There is no guarantee that orders will be executed in the market, at best market price.
- Usually, the spreads are a little bit higher in this type of model.
Regulated Brokers Offering the Market Execution Model
After weighing up the pros and cons, retail traders may decide that the market execution model is best for trading live assets. It is essential when choosing a broker to select a regulated broker with a good reputation.
AvaTrade offers advanced order types based on the market execution model. They acknowledge that slippage may occur, but assure best execution at all times, and provide a fully transparent order execution policy which is available to download from their website. Alternatively, Â City Index offers a one click trading model based on the same principle of market execution.
Importance of Choosing a Regulated Broker
Trading with a regulated broker is crucial in order to ensure that deposits are safe and protected. Most regulated brokers also now offer negative balance protection to clients and work hard to develop their trading environments to ensure their client's satisfaction. Above all, regulated brokers are accountable to their financial regulatory bodies for any problems with their services.
Conclusion
Before selecting a broker, traders should ensure that they provide a transparent execution policy, and select one that most suits their trading style.
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At BrokerNotes.co, our data-driven online broker reviews are based on our extensive testing of brokers, platforms, products, technologies, and third-party trading tools. Our product testing extends to the quality and availability of educational content, market research resources, and the accessibility and capabilities of mobile platforms and trading apps. We also dive into each broker’s trading costs, such as VIP rebates, inactivity fees, custody fees, bid/ask spreads, and other fee-based data points.
Steven Hatzakis, an industry veteran with decades of experience in the forex market, leads the BrokerNotes research team. All BrokerNotes content is researched, fact-checked, and edited by the research team.
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Note: The online brokers on our site provide the ability to trade forex in one or more ways, such as non-deliverable spot forex (i.e., rolling spot contracts), contracts for difference (CFD), or other derivatives such as futures. The availability of specific markets or features will depend on your country of residence and the broker's applicable brand or entity that services your account(s).
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There is a very high degree of risk involved in trading securities. With respect to margin-based foreign exchange trading, off-exchange derivatives, and cryptocurrencies, there is considerable exposure to risk, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or related instrument. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable, or that they will not result in losses. Learn more about foreign exchange risk.
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BrokerNotes.co provides unbiased forex broker reviews and ratings to help traders and investors find the best broker for their needs. All content is researched, fact-checked, and edited by our research team and all ratings and rankings are based on the team’s in-depth product testing.
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