Trade Execution methods
Execution by definition
Execution is the completion of a buy or sell order for a security and trading instrument the execution of an order occurs when it gets filled by a broker, when a person submits the trade, it is sent to a broker, who then determines the best way for it to be executed.
A pending order in the foreign exchange, or forex, market instructs your broker to automatically buy or sell a currency when the market reaches a certain price in the future. This type of order differs from a market order, which instructs your broker to immediately buy or sell at the current price
- Order to the Floor: This can be time-consuming because a human trader processes the transaction. The floor broker needs to receive the order and fill it.
- Order to Market Maker: On exchanges such as the Nasdaq, market makers are responsible for providing liquidity. The investor’s broker may direct the trade to one of these market makers for execution
This Article will dwell much on the electronic execution on computer systems
Buy limit order
Buy limit orders provide investors and traders with a means of precisely entering a position. For example, a buy limit order could be placed at $4.00 when a stock is trading at $4.50 If the price dips to $4.00 the order is automatically executed. It will not be executed until the price drops to $4.00 or below.
Sell limit order
A sell limit order executes at the given price or higher. The order only trades your stock at the given price or better. Your trade will only go through if a stock’s market price reaches or improves upon the limit price. If it never reaches that price, the order won’t execute
A buy stop order is an instruction for the broker to purchase a trading instrument when it reaches a pre-specified price. Once the price hits that level, the buy stop becomes either a limit or a market order fillable at the next available price.
Sell stop order
A sell stop order is entered at a stop price below the current market price; if the stock drops to the stop price (or trades below it), the stop order to sell is triggered and becomes a market order to be executed at the market’s current price.
Buy stop limit order
When you put a buy stop-limit order, you are telling the broker to buy shares if the trade price reaches or exceeds your stop price but only if you can pay a certain dollar amount or less per share