Investors and traders assume that orders are immediately executed once they click the “enter” button on an online trading account. However, they may be surprised at how an order is filled and the associated time delays.
KEY TAKEAWAYS
- Order execution is the process of accepting and completing a buy or sell order in the market on behalf of a client.
- Order execution may be carried out manually or electronically, subject to the limits or conditions placed on the order by the account holder.
- Brokers are beholden to best execution practices that are regulated by the SEC as well as individual exchanges.
Can a Broker Get a Better Price than Market Price for an Investor?
A broker may provide the execution at a better price than the public quotes, but that broker must report the details of these better prices.45 With these rules in place, it is much easier to determine which brokers get the best prices and which ones use them only as a marketing pitch.
The Bottom Line
The best possible execution is no substitute for a sound investment plan. Fast markets involve substantial risks and can cause the performance of orders at prices significantly different than expected. With a long-term horizon, however, these differences are merely a bump on the road to successful investing.
How Does Execution Affect Different Order Types?
For investors who place a limit order, their only risk is the order might not be filled. If they place a market order, speed and price execution become increasingly important.