Instant execution is a type of execution when a client is placing an order and specifies both volume and price; the order should be processed instantly. ADVERTISEMENT. If the price changes at that moment, a broker cannot change the execution price.

Types of Execution

There are three order execution modes in the client terminal:

• Instant Execution
  In this mode, the order is executed at the price offered to the broker. At sending the order to be executed, terminal sets the current prices in the order. If broker accepts the prices, the order will be executed. If not, the so-called "Requote" will occur: Broker returns prices at which the order can be executed.
• Execution on Request
  In this mode, the market order is executed at the price previously received from the broker. Prices for a certain market order are requested from the broker before the order is sent. When the prices comes, order execution at the given price can be either confirmed or rejected.
• Execution by Market
  In this order execution mode, broker makes a decision about the order execution price without any additional discussion with the trader. Sending of the order in such a mode means advance consent to its execution at this price.

INSTANT EXECUTION

• A client places an order and specifies both the volume and price.
• The order is processed instantly.
• If the order cannot be executed with the initially requested price (i.e. the price changes during the execution process), the trader receives a re-quote order that they can either accept or decline.

Instant Execution is often complemented by the fixed spread (typically larger than real market spreads). Market Maker brokers commonly use this type of execution because some trading platforms do not support Market Depth. Suppose Market Makers were to choose Market Execution. In that case, it would be difficult to explain to their clients why the price of the executed order is worse than it was when placing the order. It is especially noticeable with large volume orders of 30 lots and above.

The reason for such a mismatch is that the specific bid and ask prices are only represented with the specific volumes on the market. Large volume orders are being filled according to what Market Depth has to offer.

MARKET EXECUTION

• A client places an order and only specifies the volume.
• The bid/ask price of the asset is generated during the execution process.
• If the price changes during the execution process, the broker does not reject the client’s request but fills the order with the current pricing.
• The final price is the required volume multiplied by the latest pricing available via Market Depth.

Most Liquidity Providers (LPs) and A-book brokers working via STP/ECN models use Market Execution.

WHICH MODEL SHOULD BROKERS CHOOSE?

There is no single right or wrong answer here, and we always recommend brokers analyse their individual situation when deciding on which execution model to work with. However, there are pros and cons to both.

For example, because many LPs use Market Execution, brokers that work with Instant Execution might have difficulties when placing orders with those LPs. Again, the reason for the potential challenges comes down to the Market Depth. The Liquidity Provider that uses Market Execution cannot guarantee a certain execution price to the broker. The broker that operates with Instant Execution, in turn, is obliged to ensure a certain price to the trader.

One way to avoid this issue is by implementing limited time orders. Effectively, we will be simulating Instant Execution within the Market Execution environment. Limit Order guarantees the execution of a specified volume at the specified price. Therefore, by placing a Limit Order with a short timeout period, we can guarantee execution at the requested price.

However, this does not apply to large volume orders. The reason for that, again, boils down to the Market Depth. There might not be enough volume at the requested price, and the order will not be filled. It will increase the number of re-quotes for brokers’ clients and affect the quality of execution.