How Forex Brokers Manage Market & Instant Execution Orders
If you’re new to Forex trading, you’ve likely come across the terms “Market & Instant Execution Orders.” Understanding these order types is vital for beginner traders.
They directly impact how your trades are executed and the price you receive. In this article, we’ll break down what these order types mean. You’ll also learn how brokers manage them, and why it’s essential to know the differences.
Understanding Market Execution Orders
Market execution is when your order is executed at the best available price in the market. This type of execution means you accept the current market price. This may vary slightly from the price you see when you place the order.
Simply put, you’re saying, “I want to buy or sell now, at whatever price is available.”
Example Calculation:
You decide to buy 1 lot of EUR/USD at the current market price of 1.2000.
By the time your order reaches the broker’s system, the price might change slightly due to market volatility, say to 1.2002.
So, your order will be executed at 1.2002 – the best available price at that moment.
- Advantages: You can enter or exit trades quickly. This makes it ideal for fast-moving markets.
- Drawbacks: There might be a slight difference. It’s between the expected price and the executed price due to slippage.
What Are Instant Execution Orders?
Instant execution, conversely, ensures that your trade is executed–at the exact price you specify or not at all.
When you place an instant execution order, you’re telling the broker: “Execute my trade at this exact price.”
If the price is unavailable, the order will not be completed.
Example Calculation:
You place an order to sell 1 lot of GBP/USD at 1.3500.
With instant execution, your trade will only go through–if the broker can execute it at 1.3500.
If the price has moved to 1.3502, the order will be rejected.
And you’ll need to decide if you want to try again at the new price.
- Pros: You have control over the price at which your trade is executed.
- Cons: In fast-moving markets, there is a risk. The risk is your order may not be filled at all if the price moves.
Managing Market & Instant Execution Orders
For market execution, brokers depend on liquidity providers to fulfill orders at the best available price and aggregate prices from multiple sources. In volatile markets, this can result in slippage due to rapid price changes.
For instant execution, brokers aim to fulfill orders at the exact requested price, It uses a mix of internal and external liquidity. They may briefly hold orders internally to find a precise match.
Market & Instant Execution: A Practical Example
Let’s say you’re trading USD/JPY.
You decide to buy 1 lot at the market price with market execution. The broker checks the best price available across its liquidity providers.
If the best available price is 110.50, your order will be filled at this rate, — even if it’s slightly different from what you initially saw.
Alternatively, if you place an instant execution order to buy at 110.50,
So, the broker will check if this exact price is still available.
If it is, your order is executed immediately. If not, your order is rejected.
Brokers manage these processes using complex algorithms and high-speed servers. It’s to ensure your order is handled efficiently.
Choosing the Right Execution Type as a Beginner
So, how do you decide which type of execution to use? Here are some tips:
- Market Execution is great if you need to enter or exit trades quickly. And you’re okay with slight variations in price.
- Instant Execution is ideal if you want precise control over the price. But, somehow, you can tolerate the possibility that your order may not be filled.
Consider factors like:
- Market volatility,
- The trading strategy, and
- How important price precision is for your trades.
For example:
If you’re trading around major news events, market execution might be more practical. However, if you are trading with tight margins, instant execution can help. It’s to ensure you don’t get filled at an unfavorable price.
Whether it’s market or instant execution order, each has its advantages and considerations. It all depends on your trading style and goals. As a beginner, it’s wise to experiment with both order types.
Use a demo account to find what works best for you.
Happy trading!