Execution Speed

Trade execution speed relates to the time between placing an order on your platform and it being filled in the market. Brokers with high execution speeds help reduce slippage, ensuring you get the desired price. This comparison of best order execution brokers ranks the platforms with the fastest trading speeds. Our team also explain how to speed up execution times.

What Is Order Execution Speed?

Order execution speed refers to how quickly a trade is processed and completed after it is submitted.

When you place an order with a forex broker, for example, it usually has to be matched with another trader or company before it can be filled.

Trading execution speed is measured in milliseconds (ms). A score below 100 is good, anything higher than 200 is bad and may result in slippage.

The fastest brokers normally advertise the average time taken to complete trades. For example, Pepperstone completes most orders in less than 0.03 seconds. IG Index completes 97.93% of all orders in 0.027 seconds or less:

IG Order Flow

Why Is High Execution Speed Important?

Good trade execution speeds prevent slippage.

Slippage is the difference in price between the quote you see when you place the order and the amount you pay once the order is complete.

Imagine you are trading BAE Systems stock that is currently priced at £9.34 per share and you decide to open a buy order for 1000 shares. By the time the order is filled, you find out that you have paid £9.44 per share. The slippage in this instance would be £100 (1000 x £0.10).

The importance of trade execution speed will vary depending on your strategy. If you are investing infrequently and with a long-term view, a trade execution speed of less than 100 milliseconds may not be that important in the long run.

On the other hand, if you are day trading with a scalping strategy or automated setup in a volatile market, execution speeds can make a big difference. If significant, it can be the difference between making a profit or a loss.

To demonstrate why low slippage is important, consider the following example.

Analysis of NatWest stock indicates that there is potential for a sharp bullish trend. To capitalise on the upcoming opportunity, you place a buy order for 1000 NWG shares that are currently trading at £2.67 per share. With a fast execution speed broker, the trade is filled at £2.67. However, a slow broker may fill at £3.00.

The price of NatWest stock then climbs to £4.00. Now with the fast execution speed broker, your profit is £1,330 (1000 x (£4.00 – £2.67)). Yet with the slow execution speed broker, your profit is £1000 (1000 x (£4.00 – £3.00)). You miss out on £330 (£1,300 – £1000) by trading with the slow broker.

Ultimately, execution times can make a big difference in fast-moving markets, and the brokers with the best execution speeds are particularly important for active, high-volume traders.

Order Quality

Alongside trade execution speed, you should also consider order quality. This refers to several factors besides execution speed that relates to how well the broker has filled the order.

Order quality is arguably a better measure given that execution speeds can vary based on multiple factors, from location, time of day and connection speeds, to market conditions and order size, which can have a particularly big impact.

To help ensure that order quality is as high as possible in the UK, the Financial Conduct Authority (FCA) banned Payment For Order Flow (PFOF), a model in which brokers received commissions from market makers for completing client orders, and introduced best-execution regulatory requirements.

The FCA’s best-execution regulatory requirements say that brokers must account for the following factors when processing an order, placing a priority on price and additional costs:

• Price – How close the true price of the asset is to the order price
• Costs – Limit any extra costs to the client
• Speed – How quickly the trade is completed
• Likelihood of execution and settlement – Ensure the order has the best chance of being processed and completed
• Size – How much of the order will be filled

These requirements were introduced to uphold the integrity of financial markets with the aim that brokers must operate in their customers’ best interests. This is because the PFOF model raised a conflict of interest for brokers, who could, in theory, earn higher commissions for using market makers that provided poor order quality for clients.

Factors That Effect Trade Execution

Below are the key factors that can affect trade execution quality and speed:

Business Model

There is a range of models for how brokers connect clients with counterparties. These can generally be split into dealing desk (DD) and non-dealing desk (NDD).

DD brokers are often market makers and do not rely on sending their clients’ orders through to other firms or exchanges to fill the order. Instead, the broker can form the counterparty. Because of this, trade execution speeds can be fast.

However, the broker may also seek out other parties on its order book to be the counterparty. This means you may see a slow execution speed if you trade in an asset that your broker does not hold enough of.

NDD brokers, on the other hand, connect clients with liquidity providers to complete trades. There are two main models they use to do this:

• Straight-Through Processing (STP) – STP brokers receive information from clients regarding their orders and send the details electronically to a hub where liquidity providers can view open orders. Liquidity providers are usually companies such as banks, hedge funds and exchange houses. This is often a quick method as many providers can be the counterparty to a trade. For example, the STP broker City Index boasts an average trade execution speed of 0.05 seconds.
• Electronic Communication Network (ECN) – ECN brokers allow buyers and sellers to connect directly to complete trades, using the most recent and best-priced unfilled buy and sell orders to create bid-ask spreads which are relayed to investors. The difference between STP and ECN brokerages is that STP brokers connect you to a hub that includes many liquidity providers, whereas ECN brokers act as the hub. Despite this difference, ECNs still facilitate quick trade executions, with Pepperstone executing most orders in 0.03 seconds or less. Alongside fast execution speeds, ECN brokers help to ensure a high order quality through market transparency.

Generally, NDD brokers are recommended for high-quality trade execution and faster speeds, though there are some good market maker brokers.

Liquidity

Liquidity is a crucial factor affecting the speed and quality of order execution. Liquidity relates to the availability of finding purchasing and selling parties in the market and how much the asset can be traded without causing a large change in its value.

If there is high liquidity, an asset can be traded easily and often without causing large swings in its price. A low-liquidity asset can be harder to trade; for example, if you are selling a low-liquidity stock, you may have to wait a longer time to find a buyer willing to complete your order.

You can avoid trade execution quality problems due to liquidity by trading popular assets – major forex pairs such as GBP/USD, for example, are far more liquid than exotic pairs such as GBP/PLN.

Price

In line with FCA requirements, UK brokers must quote as close to the order price as possible while also minimising additional costs. If there are no matching orders at the price of your buy or sell order or close to it, you may need to wait longer for a counterparty to be found.

Traders often use level 2 market data to minimise any impact on trade quality. This information shows the current bid and ask orders for an asset, not just the best orders that are currently unfilled. Using this data, you can gauge where to place strike prices for buying and selling so that your orders are filled quickly.

Order Type

The type of order you use can impact trade execution speeds. The two main types of orders are market orders and limit orders.

Market orders are designed to be filled as quickly as possible at the current market price, meaning that the trader does not specify a price when placing the order.

The opposite is true of limit orders, in which the trader specifies the maximum or minimum price for the buy/sell order and waits for the order to be filled. This can take anything from seconds to days, depending on how far off the market price you set your order.

Certain brokers such as IG Index allow clients to include execution guarantees in their orders. These ensure, for a fee, that your order will only be filled at the exact strike price you set.

Order Size

The size of the order can have an impact on  execution speeds as it can take longer to find a counterparty for larger volume orders, particularly for smaller brokers.

Put simply, if you place a buy order for 1000 shares in a company but the only matching sell order has 750 shares, your order can only be partially filled until another investor with 250 shares sells their position.

To help speed up execution times and keep trade quality high, you can use order book level 2 data to find the current orders at each price level and evaluate a suitable order size. If only small-size orders are listed, you may need to adjust the size of your order for it to be filled promptly.

Some brokers with fast execution speeds impose maximum limits on the order size to maintain order quality.

Time Of Day

Trade execution speed and quality can vary according to the time of day as volumes ebb and flow. There is more activity during core market hours than during pre-market or after-hours trading, and the level of activity also tends to vary even during those core hours.

There are likely to be more orders and therefore a better chance of your buy or sell order being filled at a high quality during peak times, though brokers occasionally become overloaded with orders during particularly busy times.

To help account for this, you should be aware of the key hours for the markets you are trading in. With stocks, the first one or two hours after the market opens tend to be the busiest, but it is worth checking the data on the exchange you trade.

Forex is 24 hours, but currency pairs are usually busiest during the business hours of the relevant countries, especially when there is a ‘crossover’ of trading hours. The GBP/USD pair, for example, is often at its busiest during the afternoon when the US market begins trading.

With some global markets such as cryptocurrency that are traded 24/7, it can be difficult to pin down peak hours, however, there will often be a pattern to trading volumes, which will usually spike when markets that favour these assets begin their trading day. You can expect cryptos to be busy at the times of day when East Asia, the US and Europe begin trading.

Market Volatility

During periods of high market volatility, fluctuations in an asset’s price are common and can be large. Because of this, it can be difficult for brokers to fill orders quickly while ensuring it is of high quality.

This is particularly true of volatile markets, such as cryptocurrencies. It is also worth noting that slippage can go both ways, positive and negative.

Internet Speed

A slow network can affect the trade execution quality. If your internet connection is slow or frequently has downtime, it will take longer for your broker to be notified and send the order to liquidity providers, lowering the execution speed.

This can also be impacted by the broker you choose and their server location. As a UK investor, your latency may be better if you are using a broker with a server in London, for example.

Alternatively, consider upgrading your internet package to a faster connection, particularly if you share it with numerous devices in your household. Aim for 25 Mbps as a minimum and 100 Mbps for scalping setups.

Your Device

Computing power and processing speed can also affect your executions, depending on how well your device handles the software and programs you are using to complete analysis and execute trades.

For instance, if you use the MetaTrader 4 (MT4) platform, most computers and mobile device should comfortably meet the hardware requirements to ensure fast, seamless trading. With that said, it’s worth noting that MetaTrader 5 (MT5) is faster with 64-bit processing vs 32-bit processing with MT4.

If you are experiencing issues with your computer, check the hardware requirements or recommendations for your trading platforms. They may indicate which parts of your device need upgrading so you can ensure higher trade execution speeds. Also, make sure you periodically clean up your system and delete unused apps.

Bottom Line On Execution Speed

The best execution speed brokers help reduce slippage, meaning the price you pay is close to the price of your buy or sell order. However, it is important to also look at execution quality. This includes other factors such as price accuracy, costs to the client, order size and the likelihood of the trade being completed.

FAQ

Article Sources

IG Index order execution policy

Pepperstone order execution policy

FCA Payment for Order Flow (PFOF) report