Execution in financial trading terms refers to the finalisation of an order by a trader to either buy or sell an [instrument] with a broker. In simpler terms, the order has to be completed and not just initiated. Only when the order has been [filled] is it deemed as executed.
By simply initiating the order, there is no certainty that the trader is entering into the trade, they are merely placing an order to either buy or sell. The broker will then in turn have to execute the order that was placed by the trader.
There are three main types of order execution. Firstly, instant execution or a market order - where the broker has to process an order immediately after it has been placed by the trader at the prevailing market price. The second method is a [limit order] where a trader agrees to a trade being executed at a specific price. Lastly, execution can occur at a request whereby the trader can choose to accept or reject the trade at hand.
Different orders will be executed at different times, for example [good until canceled] (GTC) orders can be executed at any time until the trader decides to retract the order, however, in the case of day orders they have to be executed on the day that they were placed before they expire at the end of the session or market day.
There are two ways in which a broker can carry out the orders, either they place this order digitally to be approved or they can submit it directly to the order books to be carried out immediately.
Key takeaways:
- Execution refers to an order being carried out by the trader. This is applicable to both the buying as well as the selling of an instrument.
- There are three methods of execution, namely: instant execution, market execution and execution on request.
- Different orders are carried out at different times. Day orders have to be executed before the end of session and gtc orders are in play until a trader makes the decision to retract the order they placed.