CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% 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.
Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data. *Availability subject to regulation.
There are two types of execution methods available to traders; instant execution and market execution.
Whereas market execution is used by no dealing desk brokers, and allows traders to get their order filled at the best price available in the market; instant execution is used by dealing desk brokers, who execute the order at a precise price – the last price quoted on the trading platform. Traders can nominate stop loss and take profit levels before the order is executed; risk management elements that are not available before entering a trade with market execution. Orders are then filled at the requested price (or a specified deviation from this price). However, as orders can be processed with a delay, a requote from the broker may be required if the price deviates outside of the requested parameters. Although there are no requotes with market execution, the price that a trader desires may not be the price that their order is filled at. A potential advantage of instant execution, therefore, is that orders are only processed as long as they remain at the requested price, within the price parameters, or at the requoted price if accepted by the client.
This execution type can be useful for news traders who wish to avoid significant price changes while executing trades during high volatile events, such as interest rate decisions and inflation releases. Instant execution is also useful for high frequency scalpers who target just a few pips in every trade, and set stop loss and take profit levels to manage the risk in their trading strategy. There may, however, be limits that apply to trading strategies such as this when using the instant execution method.
There are also disadvantages associated with instant execution. The chief disadvantage is that traders may miss a good price. For example, a trader may wish to buy EUR/USD at 1.2050, but after the processing delay, the price has moved up to 1.2052 and there is no option to buy EUR/USD at a price two pips higher than the price quoted. A requote would be required in this instance, but by the time the trader has accepted the new price and the order processed, the price may have moved further, requiring another requote, and so on. This can be somewhat mitigated by setting deviation parameters.
Some of the same pros and cons that apply to no dealing desk versus dealing desk brokers also apply here. Whereas with no dealing desk brokers, orders are executed direct with the market at the best price available; with dealing desk brokers, the price is supplied by the broker and there is a delay before the order is executed, which can lead to requotes.
Instant execution still offers a number of advantages, however, including the ability to set stop loss and take profit levels; and the certainty surrounding the price that an order will be executed at. However, during periods of volatility, traders may miss a good trading opportunity as the broker is required to repeatedly requote as the price moves.
It is important to research a broker’s approach to instant execution and market execution before making trading strategy decisions, establishing, for example, whether they are able to switch between execution methods when trading forex.
Brokers such as AvaTrade and FxPro offer instant execution, and as regulated brokers, also offer a degree of protection for their clients, as required by the stringent regulatory standards they adhere to.
A trader needs to decide whether instant execution is suited to their trading style by weighing up the advantages and disadvantages. It may be more suitable for traders that require an exact filling price and for traders wanting to manage the risk of making trading decisions based on emotions by setting stop loss and take profit levels.