Tuesday Aug 22 2023 11:36
3 min
In simple terms, a trade ‘execution’ is when your buy or sell instruction is completed, rather than when you actually place the trade order.
When you place a trade with a broker, there is a small gap between when you place the trade, and when it’s actually fulfilled.
Brokers are required by law to find the best way to place your trade, and this can take varying amounts of time. This means that the gap between placing the trade and executing it can vary in length.
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Asset prices can change between you placing a trade and then your broker executing it. This is known as ‘slippage’.
This may mean that although you place your trade when your chosen asset is priced at $45, by the time it’s executed, the price could have moved to $46. Any profit or loss you make will usually be on the executed price.
This can also be the case when you sell. So, if you place an order to close your trade with a profit of $198, say, you may find that by the time the close order is executed, your profit has fallen to $195. (Or risen to $200.)
If you place a particularly large order for less-liquid asset, you may find that your broker (or your trading platform) breaks the order down into smaller trades so it can be fulfilled.
So, let’s say you want to place a $10,000 trade on a less liquid asset, and the buyers just aren’t there. Your broker may need break the trade down into four $2,500 trades, and then buy those four positions as and when the opportunities arise.
If this happens, it’s likely your trades will be made at different entry and exist points, and any profits or losses will also vary position to position.
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