Order execution
Also called trade execution, execution, order filling, execution mode
Order execution is the process of turning your buy or sell instruction into a completed trade: the order is sent, matched with a counterparty at an available price, and confirmed. The price and time of that fill set your real entry or exit.
The price you click is a request, not a promise. In a fast market you can be filled a few pips away, and that gap comes straight out of your profit or adds to your loss.
What happens between your click and a filled trade
Every order, manual or automated, goes through the same sequence:
- You send the order, by hand or through an automated strategy (EA): symbol, direction, size and order type.
- The broker's server checks it against your free margin and the trading rules for that symbol.
- The order is matched with a price, either from the broker's own book or from a liquidity provider or exchange.
- A confirmation comes back with the fill price and time.
- 1Send the orderSymbol, direction, size and order type
- 2Broker server checksFree margin and the symbol's trading rules
- 3Matched with a priceBroker's own book, a liquidity provider or an exchange
- 4ConfirmationFill price and time come back
In a quiet market this takes a fraction of a second. In a fast market, the price can move while the order is in transit.
Two things can then differ from what you expected. The first is the price: slippage is the difference between the price you requested and the price you were filled at. It can be negative (a worse price) or positive (a better one).
The second is the outcome. The order can be rejected, or you can get a requote, which is a new price the broker offers for you to accept or decline.
Broker execution models: dealing desk, STP and ECN
How your order gets filled depends on the broker's execution model.
| Model | Who fills you | What you get | What can go wrong |
|---|---|---|---|
| Dealing desk (market maker) | The broker itself, taking the other side of your trade | Prices the broker quotes, often steady in calm markets | Requotes in fast markets, and a conflict of interest because your loss can be the broker's gain |
| STP (straight-through processing) | Liquidity providers the broker passes your order to | A fill at the best price those providers offer, usually with a markup in the spread | Slippage when price moves, with no requote to accept or decline |
| ECN (electronic communication network) | Other participants in a shared pool of orders | Market prices with a separate commission | A partial fill or slippage if there is not enough size at your price |
Order type matters too. A limit order can only fill at your price or better. A stop order turns into a market order once price touches it, so a stop loss can fill beyond its level.
What a 1-pip slip costs you: a worked example
The figures here are an illustrative example. You buy 1 standard lot (100,000 units) of EUR/USD, where one pip is worth $10. The quote is 1.09990 bid and 1.10000 ask. You click buy at 1.10000, the market is moving, and the order fills at 1.10010.
The ladder below shows the three prices and the 1-pip gap you paid on top of the spread.
Your stop loss sits at 1.09800. You planned a 20-pip risk from 1.10000. From the real entry at 1.10010 the distance is 21 pips.
If the stop also slips 2 pips, as in the chart above, the loss becomes 23 pips, or $230.
The formula to copy is: slippage in pips × pip value per lot × lots.
Use it as a decision rule for any strategy, manual or automated. Take your average profit per trade from a backtest or demo results, which assume perfect fills, and subtract your average slippage cost per trade from your live records. If the backtest shows $8 per trade and slippage costs $10, the strategy loses money live.
Where to check how your orders are filled
- The order ticket. Some brokers let you set a maximum slippage or price tolerance. It sets how far the fill may be from your requested price before the order is refused. Too wide and you accept bad fills; too tight and orders get rejected.
- Your account history. Each deal lists its fill price and time. Compare these with the price you asked for.
- Positive slippage. Ask whether positive slippage is passed on to you or only negative slippage.
Checks before you place a trade
- Measure it yourself: place 20 to 30 small live trades, note requested and fill price, and average the difference in pips.
- Do not judge execution on a demo account. Demo orders are not matched against real liquidity, so fills tend to look cleaner than live ones.
- Avoid market orders around major news releases and the daily rollover, when quotes thin out and spreads widen.
- Size positions as if the stop loss could fill a little beyond its level. An ordinary stop does not lock in its price.
- If your strategy targets only a few pips per trade, treat execution speed as part of the strategy. The delay between your order and the broker's server decides how stale the price is on arrival.
FAQ
What does best execution mean in trading?
It is a broker's obligation to take reasonable steps to get the best overall result for client orders, weighing price, costs, speed and the likelihood of a fill. It does not mean the best price on every single trade. Your broker's order execution policy explains how it applies this.
What does an executed order mean in stocks?
It means your order was matched with another trader's order on the exchange and the trade is done at the fill price. Before that, the order is only working and can still be cancelled. The transfer of cash and shares, called settlement, happens afterwards.
Why was my order rejected instead of executed?
The usual causes are not enough free margin, a closed market, a size outside the allowed minimum or maximum, a stop placed too close to the current price, or a price that moved beyond your slippage tolerance. The platform's log shows the reason given by the server.