Types of Order Executions
In this article
Often you do not fully understand what happens when you click the enter button on your trading account.
You are mistaken if you think that your order is always filled instantly after you click the button.
You might be amazed at the number of different methods an order might be filled and the time delays.
Before digging deeper into order executions, it’s important to mention the types of market orders.
Types of market orders
a. Market orders
Market orders are executed on the market in real-time at the current price. You’re telling the broker that you’re more concerned with getting into the market right now than with the spread. A market order allows you to open or close a trade at the current market price.
b. Limit orders
Limit orders are often applied to exit the market profitably. For example, if you’re opening a buy position, the limit order will be higher than the market price, and if you’re going short, the limit order will be lower. Consider a limit order to be a finish line. When the market price crosses the limit order, your trade will be closed, and your profit will be credited to your account balance.
c. Entry orders
Entry orders are those that are placed to join the market at a specific price. It is nearly hard to monitor the market at all times, which is why an entry order can be useful.
d. Stop orders
A stop order is also an exit order that will bring your deal to an end. This sort of order, also known as a stop-loss order or a protective stop order, is designed to restrict the amount of loss experienced by your trade.
Methods of order executions
In simple words, the practise of receiving and completing a buy or sell order in the market on behalf of a client is known as order execution.
Order execution can be done manually or electronically, depending on the limits or requirements set by the account holder.
1. Market Maker
Instead of submitting an order to the market, a broker may choose to submit it to a market maker. A market maker is a company that buys and sells currency pairs. A market maker may pay a broker to divert the flow of orders to them in order to get brokers to deliver the orders.
2. Over-the-Counter (OTC)
Assets can be traded over the counter by investors. An OTC over-market maker may pay a broker to direct them to send the order to them in this situation.
Investors’ buy and sell orders can be sent to an ECN (electronic communication networks), where a computer system will match up purchase and sell orders together. This is especially likely in the case of a limit order, which is when an investor demands a specific price to purchase and sell an item.
Sometimes, the broker’s firm may already own forex pairs or other assets. In such a situation, the trade execution is done in-house by filling the order using the firm’s inventory of assets. The broker may earn a profit from this execution if there is a difference between the bid-ask spread.
Types of order executions
Now that you know the different types of market orders, let’s move to their execution.
There are two forms of execution: Market and Instant.
1. Instant Execution
It is a form of order execution. The order is executed precisely at the given price or may not be executed due to sharp price fluctuations during the order placement procedure.
2. Market Execution
It is the inverse of Instant. It is quicker and features guaranteed order execution. Orders are always opened at current market pricing.
It is important to note that slippages can occur during periods of severe market volatility. That is, the order will be fulfilled but at a different price.
The market price may be lower or higher than the quoted price. However, you always have the option of closing the transaction with a profit. Traders who want to open a position as soon as possible prefer market Execution.
How are orders executed?
First things first, let’s clear some misconnection of order executions.
Many traders who use online brokerage accounts believe they directly connect to the securities markets, but this is not the case.
When you press the enter key, your order is transmitted over the Internet to your broker, who determines which market to send it to for execution.
While transaction execution is typically easy and speedy, it does take time, and prices can fluctuate quickly, particularly in volatile markets.
Investors may not always obtain the price they see on their screen or the price their broker stated over the phone because price quotes are only for a fixed quantity of shares. The price of the forex pair may have risen somewhat by the time your order reaches the market.
Orders are filled at the best price available at the moment the order is received.
Here’s how orders are executed in various markets:
Gold and silver price quotes are obtained from wholesale foreign exchange, gold, and silver market prices provided to us by chosen top-tier worldwide banks.
Commodity CFD price quotations are obtained from quoted or execution prices from commodity derivative exchanges.
Index CFD price quotations are produced from quoted or execution prices for the underlying reference assets from derivatives exchanges with respect to the supplied indices at the best available price.
Conditions of order executions
While many orders made to a broker are market orders, others may have conditions attached that limit or alter how and when they can be executed.
A conditional order can contain, for example, a limit order, which specifies a fixed price above or below which no buy/sell can occur.
Other criteria include the time range in which an order can be executed, such as immediate-or-cancel (IOC) for orders that must be completed instantly or good-til-cancel (GTC), which remains a standing order unless explicitly cancelled and can last many weeks. Several different varieties and types of conditions or situations exist.
The significance and effect of order execution are determined by the circumstances, namely the sort of order you submit. For example, if you place a limit order, your only risk is that the order will not be filled.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst