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What is the quality of your broker’s order execution?

Order execution is a process of filling the requested buy or sell order of the trader.

In the previous lesson, we talked about the prices that forex brokers show you on their trading platforms and whether the prices are fair and accurate.

But having fair and accurate pricing on your trading platform means nothing if your trade hardly ever executes at the shown price.

It’s like visiting a bakery and being shown a photo of a cake they offer. You like how it looks so you order it. But when you get it, you discover that the baker wasn’t able to actually execute and create the cake that you requested.

Poor Order Execution

What you see above is an example of poor cake order execution! 🤣

It’s important to find a baker broker that is committed to execution quality and transparency.

In other words, the broker should be committed to treating you fairly when it executes your orders.

Let’s revisit a part of the earlier story with Batman and Spider-Man:

I’m betting that it’ll go up from 1.4100, its current price. Here’s my $20 to open the bet.

Spider-Man suddenly spidey senses that GBP/USD will continue to rise so he tries to stall by pretending not to hear Batman.

Hello? Did you hear me? Unlike snakes, spiders aren’t deaf. Here’s my $20 to open the bet.

What was that? So you do want to open a bet? My price for GBP/USD has changed. It’s at 1.4150 now. You still want to make the bet?

Dude, what the hell. I thought you said GBP/USD was at 1.4100. Now you change the price all of a sudden?

That’s my new price. So are you in? Better hurry, before I change my price again.

Fine. I’m in. I bet it’ll go up from 1.4150.

Notice how Spider-Man originally offered to “fill” Batman’s order at 1.4100, but then all of sudden changed the price to 1.4150.

Batman was “slipped” by 50 pips. That ain’t cool.

If you’re not familiar with the story above, this means you haven’t read our earlier lesson on How Forex Brokers (Kinda) Work where Batman and Spider-Man make guest appeaarances. It’s highly recommended that you read this lesson first.

What is your broker’s Order Execution Policy?

Forex brokers should provide clear disclosure to customers about how their orders are executed.

It should be able to provide a document that’s usually called “Order Execution Policy“.

This document summarizes the process by which their trading platform executes your orders to obtain the best possible result for you

Having an explicit order execution policy, so you know how your orders will be handled, should be seen as a prerequisite before further evaluating a broker.

You should look for the following:

  • The process followed for selecting the price sources used by the company.
  • The process for selecting the hedging counterparty (“LPs”) for their customer’s trades.
  • The process for selecting and monitoring the technology used for executing customer orders.
  • How the company manages any potential and actual conflicts of interest arising when executing customer orders.

Once you’ve read and understood their policy, there’s more homework to be done!

Here are some questions to ask your broker to help you evaluate the quality of their order execution:

  • How committed is the broker to order execution quality and transparency?
  • How automated is their order execution process?
  • What is the average spread per currency pair?
  • How fast are trades executed? What is the average execution speed?
  • What percentage of orders are executed with slippage?
  • What percentage of trades are successfully executed?
  • What percentage of orders are executed with positive slippage?
  • What percentage of orders are executed with negative slippage?

How committed is the broker to order execution quality and transparency?

Brokers who are committed to fair pricing and quality order execution prove it b being transparent and publicly disclosing execution statistics.

Order Execution ReportThese brokers regularly publish execution data reports which include stats like average execution speed, average spreads, percentage of trades executed at the requested prices (no slippage), and percentage of trades executed with both positive and negative slippage.

These reports are usually published on the broker’s website. If you can’t find it, contact the broker and request it.

Aside from order execution reports, how transparent are they about their order execution process? Do they disclose the following:

  • Who are their liquidity providers (LPs)?
  • What percentage of volume does each LP provide?
  • Does it disclose any close links, conflicts of interests, or common ownerships with any LPs?
  • Does it disclose any specific arrangements with any LPs regarding payments made or received, discounts, rebates, or non-monetary benefits received?
  • Does it provide an explanation of how order execution differs according to different customers, where the broker treats categories of customers differently?

If they can’t provide one or mention that such data or information isn’t made public, then you might want to move on and choose a broker that is more supportive of transparency and fairness in the retail forex industry.

How automated is the order execution process?

There are shady brokers out there that manipulate order execution conditions in their favor.

Can your broker explain to you their process in executing orders?

Is the entire process automated? If not, can they specify scenarios when manual intervention is involved?

What is the average spread per currency pair?

On its trading platform, the broker quotes two prices:

  1. The higher price (“ask”), at which you (the customer) can BUY (“go long”).
  2. The lower price (“bid”), at which you (the customer) can SELL (“go short”).

Both prices are collectively referred to as the broker’s prices.

The difference between the bid and ask price is the spread.

Bid and Ask Spread

What is the average spread per currency pair made available to the broker’s customers?

Can data on spreads be broken down by hours? For example:

  • What is the average spread per currency pair during ALL trading hours?
  • What is the average spread per currency pair during PEAK trading hours?
  • What is the average spread per currency pair during NON-PEAK trading hours?

How fast are trades executed?

How fast are trade typically executed? This is also known as execution speed.

Execution speed is defined as the amount of time between when the broker receives your order until execution.

Order Execution Process

The faster the speed, the more volume of trading that can occur. More importantly, the faster the speed, the more chances for a broker’s customers to be able to buy or sell at the price that they have requested.

Ask the broker what their average execution speed is. Ideally, it should be 0.1 second (or 100 milliseconds) or less.

Also, ask what percentage of trades are executed in less than 1 second. 

If orders are taking more than 1 second to execute, you’re most likely going to experience slippage because prices have changed before your order completes.

Prices in the forex market can move in milliseconds, so if the broker’s execution speed is too slow, the price you clicked on to trade on may have changed by the time the broker can execute the order.

What percentage of orders are executed with slippage?

When you see a price on your broker’s trading platform and want to trade on that price, your broker is supposed to exert every effort to fill your order at that requested price.

When executing orders, the broker has an obligation to take ALL sufficient steps to obtain the best possible result for their customers taking into account multiple factors. This is known as striving for “best execution“.

Ideally, obtaining the “best possible result” means you get the price that you requested.

But while the price is the most important factor when considering the best execution, it’s not the ONLY factor. 

This means that the price you wanted may not be the price your order is executed at.

Whenever you are filled at a price different from the price requested, it’s called “slippage“.

Broker Slippage

Traders typically focus more on the spread, while largely ignoring slippage unless the slippage is blatantly obvious when one of their orders is filled

Slippage isn’t necessarily something that’s bad because ANY difference between the intended execution price and actual execution price qualifies as slippage.

Market prices can change quickly, allowing slippage to occur during the delay between a trade order being processed and when it is completed.

Slippage can occur for many reasons, but price volatility is often the biggest reason.

As price volatility increases, slippage (both positive and negative) occurs more frequently. As price volatility decreases, slippage occurs less frequently.

This is why traders typically see more slippage during high periods of volatility, such as during breaking news or economic data releases or when a former U.S. president used to fire off a random tweet before his account was suspended.

Under normal market conditions, if your broker cares about execution quality, occurrences of slippage should be infrequent and the magnitude of slippage should be minimal.

What percentage of trades are successfully executed?

Successful order execution is when the order is executed at the requested price or better.

No Slippage Example

This can be further broken down by market and limit orders:

  • What percentage of market orders are filled “at or better”?
  • What percentage of limit orders are filled “at or better”?

When an order has been executed, it is referred to as being “filled” or a filled order“.

Market and limit orders can be used as entry orders (that open a new position) and closing orders (that close an existing position).

A market order is an instruction from a trader to their broker to execute a trade immediately at the best available price.

A limit order is an instruction to execute a trade at a level that is more favorable than the current market price.

Limit orders allow you to specify the minimum price at which you will sell or the maximum at which you will buy.

What percentage of orders are executed with positive slippage?

Positive slippage, also known as price improvement, occurs when your order executes at a more favorable price than the price you request.

(The opposite of a price improvement is negative slippage, which is when your order executes at a less favorable price.)

Can the broker tell you the percentage of executed trades that were executed at a more favorable price than the price their customers requested?

And what is the average positive price improvement per order (in pips)?

This is defined by the pip difference between the requested and executed price of orders with the improved price.

Orders can also be further broken down by market and limit orders:

  • What percentage of market orders are filled at a more favorable price than requested?
  • What percentage of limit orders are filled at a more favorable price than requested?

For example, let’s say you want to buy EUR/USD immediately.

You hop on your forex broker’s trading platform, and see the price of 1.1050 being displayed and click “Buy”.

Positive Slippage Example

So 1.1050 is the price that you wanted your market order to be executed at.

The order is submitted, and you receive a confirmation that your buy order was filled at 1.1049 (1 pip below your requested price).

Because the order was filled at a better price (1.1049) than you requested (1.1050), you experienced positive slippage of 1 pip.

What percentage of orders are executed with negative slippage?

Negative slippage is which is when your order executes at a less favorable price.

Shady brokers have software that allows them to sneakily slip traders very small amounts on every trade order. It’s like “death by a thousand cuts” where traders don’t realize they are losing a couple of pips on each trade. This is why you ask about their negative slippage stats.

Can the broker tell you the percentage of executed trades that were executed at a less favorable price than the price their customers requested?

And what is the average negative price improvement per order (in pips)?

This is defined by the pip difference between the requested and executed price of orders with the inferior price.

This can be further broken down by market, limit, and stop orders:

  • What percentage of market orders are filled at a less favorable price than requested?
  • What percentage of limit orders are filled at a less favorable price than requested?
  • What percentage of stop orders are filled at a less favorable price than requested?

For example, let’s say you are trying to buy EUR/USD at the price of 1.1270.

So on your trading platform, you enter a limit order with a price of 1.1270 and click “Buy”.

Negative Slippage Example

So 1.1270 is the price that you wanted your limit order to be executed at.

The order is submitted, and a couple of minutes later, you receive a confirmation that your buy order was filled at 1.1273 (3 pips below your requested price).

Because the order was filled at a worse price (1.1273) than you requested (1.1270), you experienced negative slippage of 3 pips.

If traders do check to see what spread and slippage they receive on a trade, it’s typically when the trade is OPENED and then they don’t bother (or forget) to check when the trade is closed. Shady brokers are aware of this. Since they know you’re probably watching when you open a trade, they’ll sit tight and won’t interfere. But when the order is closed, that’s when they’ll sneak in the extra slippage. 👿

Are you suspicious about why your order wasn’t executed at the requested price?

Brokers may have the ability on their trading platform to control and add “slippage” and/or delay the execution of your order, so you end up getting filled at a worse-off price.

For example, brokers can deliberately introduce negative slippage into the order execution where if price benefits the broker, it’ll execute.

But if the price does NOT benefit the broker, then the price is slipped and requoted with another price that favors the broker.

If you’re suspicious about why your order wasn’t executed at the requested price, you can request a post-trade execution report.

Upon request, your broker should be able to provide you, within a reasonable time frame, documented evidence which demonstrates clearly that it executed your order in accordance with its Order Execution Policy and information about its order execution arrangements.

For example, in the U.S., retail forex brokers are required to provide their customers, upon request, with certain order execution data.

This includes price data for the 15 transactions in the same currency pair that occurred immediately before and after the customer’s transaction  This allows their customers to verify that the prices offered closely mirror prevailing market prices.

The Bottom Line

Forex brokers operate different order execution methods, none of which is “right” or “wrong”.

Regardless of the execution method of a forex broker, what ultimately matters is that the broker:

  • Provides transparent prices that closely track the”real” (institutional) FX market in real-time and
  • Fills orders at requested prices without delay.

You want to select a broker who:

  • Is honest about the risks and hazards of leveraged trading
  • Is transparent about its pricing policy
  • Is clear about how it executes orders
  • Has robust risk management policies
  • Is adequately capitalized (so it can’t go bust)
  • Has a formal process for handling customer complaints that’s quick and fair
  • Is licensed and regulated in multiple jurisdictions (especially where you live)

If a broker doesn’t provide clear information about all of the above on their website, contact them directly and ask them.

If your broker declines to answer any of your questions, ask WHY.

Be suspicious of any broker that believes it is above scrutiny.