Money management

INSTANT EXECUTION or MARKET EXECUTION. What to choose?

Written by Tim T.


«INSTANT EXECUTION»

Many brokers say that the execution of trade orders for «Instant Execution» is really instant. However it is not so. The system of performance has no relationship to the speed of order execution. The speed is entirely determined by the broker, his dealing policy and honesty. The system of performance is the principle by which you get to the market.


«INSTANT EXECUTION» - WHAT IS IT?

«Instant Execution» means that the broker must perform your order either at the price of your request (at the price which is displayed on your chart when you click «Buy» or «Sell ") or not execute at all.

Let's consider the mechanism of the process in details:

1. At 15:16:03 you click on «Buy» on which EUR / USD 1.49059 is written.

2. The broker gives you the message "Order received" and "Order in the performance." This means that the broker starts to process your request and tries to deduce your transaction on the interbank market (forex). This process takes some time - usually from 0.5 to 20 seconds. During this time the price can go up, down or stay in place. Let's examine each of these options, bearing in mind that under the rules the broker must get you into the market at a price of 1.49059 or not execute your order at all.

2.1. The price did not changed. In this case, your order will be executed at the requested price of 1.49059.

2.2. The price went down. If the broker executes your order at 1.49059 he can earn this price difference in addition to spread as he can buy cheaper than you have asked to. In this case, your order will be executed at the requested price of 1.49059. (Note that if the price goes against you too far then most likely your broker will not execute the order)

2.3. The price went up. In this case, it will not be profitable for the broker to execute your order because price is worse than yours. In this case, your order will be rejected by the broker and you'll get a message saying that the price has changed - the so-called requite.

The performance of pending orders and «TakeProfit» or «StopLoss» orders has its own nuances and they are so diverse that it makes no sense to describe them all. We'll only note that in case of strong price gaps (when the price jumps over your order or stop order) your order can be executed with slippage, will not be executed, can be executed at the declared price. These all depends on the broker.

 



WHAT ARE THE ADVANTAGES OF «INSTANT EXECUTION»?

  • If your strategy means an accurate enterance in the market at the price you've requested and if it is better to stay away from the market when you request can be executed accurately the you have to choose «Instant Execution».
  • It is possible to set the parameters «TakeProfit» and «StopLoss» when you send the order.

For scalpers (especially for hose who jump into the abnormal movement, such as news movement) «Instant Execution» is the only suitable execution system.

WHAT ARE THE SHORTCOMINGS OF «INSTANT EXECUTION»?

The main shortcoming of «Instant Execution» is requotes. If the market moves too quickly, the number of requotes rises and there is no chance to enter on your signal. The average number of requotes ranges from 1% to 20% of total orders. There are practically no requotes in a quiet market.

For example, some feathered systems are insensitive to the fact that the deal will be opened on a slightly better or worse price. It is much more important for them to be opened at all because such systems are built on a series of transactions and a break in series can disrupt the entire system.

«MARKET EXECUTION»

As in the case of «Instant Execution», this system does not determine the speed at which your request will be processed - it is the principle by which you get to the market. Although in practice, brokers which use «Market Execution» execute the orders faster than the brokers which use «Instant Execution».

«MARKET EXECUTION» - WHAT IS IT?

If the broker uses this system,  he assures you, with almost 100% chance, that your order will be executed, but it is quite possible (though not necessarily) that it will not be executed at the price you see on the screen. It will be executed at the price which exists in the market at the time of order execution. This price can be better and worse than the one you saw on the chart when you pressed «Buy» or «Sell».

Let us consider in details the mechanism of this process:

1. At 16:19:23 you click on «Buy» - GBP / USD 1.65282.

2. The broker gives you the message "Order received" and "Order in the performance." Like with «Instant Execution», this means that the broker starts to process your request and tries to deliver your deal to the interbank market (forex). While he does it, the price can go up, down or stay in place.

2.1. The price did not changed. In this case, your order will be executed at the requested price of 1.65282.

2.2. The price went down and it is 1.65202. In this case, your order will be executed at the price of 1.65202 and your order will be opened 8 pips better than you planned.

2.3. The price went up and is 1.65361. In this case, your order will be executed at the price of 1.65361 and it will be opened by 7.9 pips worse than you planned.

As you can see, your order will be executed in any case, whatever the price will be. But whether it will be better or worse, depends entirely on the will of the case.

WHAT ARE THE ADVANTAGES «MARKET EXECUTION»?

  • If your strategy is important, not the accuracy of input, and the fact it is better to choose a broker with the runtime system «Market Execution».
  • The logic of this system allows the execution of a broker to handle the client requests more quickly and bring them to market.

For systems with a mean and a large "spread" the nuances of the entrance are of no importance, and if important to them is not accurate input, and the fact it is better to choose a broker with the runtime system «Market Execution».

WHAT ARE THE SHORTCOMINGS OF «MARKET EXECUTION»?

The main shortcoming of «Market Execution» lies in its advantage -  the execution of the price  at the moment of execution. During periods of abnormal volatility (news release, opening of markets after the holidays and so on) the price may change abruptly at dozens of points. So your order may open with a big plus or vice versa with a greatloss.

When you use this system it is impossible to specify «TakeProfit» and «StopLoss» just when you send an order to the broker. Since it is not known in advance, at what price your order will be executed, it is impossible to determine whether «TakeProfit» and «StopLoss» will stay outside the allowable Stop / Limit levels or not. So you have to open the position and only than you can put «TakeProfit» and «StopLoss» modifying the order.
 
 
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