✔️ Information reviewed and updated in April 2024 by Pedro Martínez González
The world of trading is full of many terms that you may find somewhat intimidatingespecially when you are starting out. One of the terms that you should know well is that of executions. In this post we will try to guide you in the best way so that you can understand the term and so that you can start applying it in your favor.
📈 What are executions in trading? 📈
When you trade in the stock market, it is normal to find many ups and downs in the market. This is when executions come in to make our work easier. An execution is nothing more than the action of entering or exiting an order. By simply pressing the "buy or sell" button you will be telling the broker to execute that purchase or sale on your behalf.
There are two types of executions, instant executions and market executionsChoosing the most suitable one for you will depend on your investment strategy. Although both seek the same end, the time in which they are executed is the difference between them.
📊 Instant execution 📊
Instant execution is one where the operation is performed immediately after pressing the buy or sell button. In this case, the person who is going to operate has decided that this will be the purchase or sale price. The action is then executed immediately and the order is placed.
E.g.: you want to buy a share of X company, which has a current value of 13,25 euros. If you agree with the price and you want to continue with the order, you just have to click on the buy button and the order will be executed instantly.
✅ Advantages and disadvantages ❌
Advantages:
- You decide the exact price for the purchase.
- It is a way to protect your investment from market volatility
Disadvantages:
- There may be requotes on the price.
- Purchase is not guaranteed.
- It is much more limited in terms of trading strategies.
📉 Market execution 📉
Market executions are a bit different as these establish some rules that allow the system to carry out the operation when your criteria are met. Market execution is one of the most used types of execution, both by novice and experienced traders.
Example: If you want to acquire a share of company X whose value is located at, say, 6,78 euros per share, but it is estimated that the price will continue to fall, you can place an order so that when it falls to 6,75 euros the purchase is made automatically.
✅ Advantages and disadvantages ❌
Advantages:
- You do not need to be pending the market all day to make the purchase, you simply configure the operation and it will be carried out automatically.
- It guarantees the purchase when it reaches the indicated price.
- Prices are set by the market, there is no type of requote.
- It is possible to perform multiple trading strategies using this type of execution.
Disadvantages:
- It is not possible to configure Stop Loss or Take Profit.
- The purchase price may be slightly higher or lower than the established price.
🖐️ Conclusion: What kind of execution should I put into practice? 🖐️
No matter what type of execution you use, there is nothing safe in trading and using one method or another will not guarantee profitability. So always it is advisable to use the method with which you feel most comfortable. What's more, it is best that you try both methods.
Market execution lends itself to many types of strategies and is very easy to use, thanks to which it has become the most widely used method. However, if you are looking for more control over your operations, it is best to opt for instant execution.
Very good explanation, it has clarified my doubts and I have understood it perfectly! Thank you!!