How Forex Execution Works
What happens between clicking "Buy" and your order being filled? Understanding order execution helps you choose a broker and trading conditions that align with how real markets function.
The Order Execution Lifecycle
Every trade follows a defined path from your platform to the market and back.
1. Order Placement
You submit a market or pending order from your trading platform. The order includes the instrument, direction, volume, and any price conditions such as limit or stop levels.
2. Order Routing
Your broker routes the order according to its execution model. Orders may be passed to external liquidity providers or matched internally depending on market conditions and account configuration.
3. Price Matching
The order is matched against available bids and offers in the market at that moment. Liquidity depth, volatility, and timing influence the final execution price.
4. Order Fill
Your order is executed and confirmed back to your platform. If market prices move between submission and execution, the final fill price may differ from the requested price due to market movement.
Direct Execution vs Market Maker Models
Execution models determine how orders are handled and how prices are formed.
Direct Execution
- Orders routed to external liquidity providers
- Prices reflect real-time market conditions
- Variable spreads based on liquidity and volatility
- Execution driven by available market depth
Market Maker
- Orders may be internalized by the broker
- Prices derived from broker-generated quotes
- Spreads may be fixed or adjusted during volatility
- Execution depends on broker pricing policies
What Affects Your Execution Quality
Several factors influence how quickly and accurately trades are filled.
Market Liquidity
Higher liquidity generally results in tighter spreads and faster execution. Major currency pairs typically have deeper liquidity than exotic instruments.
Network Latency
Execution speed depends on the distance between your platform, the broker's servers, and liquidity sources. Low-latency infrastructure reduces delays.
Market Volatility
During high-impact news or rapid price movement, available prices can change quickly. This may result in execution at a different price than initially requested.
Market Execution
Orders are executed at the best available market price at the time they reach the execution venue.
Institutional Liquidity
Pricing is sourced from aggregated liquidity pools designed to support depth and continuity.
Transparent Execution Behavior
Execution outcomes reflect prevailing market conditions including liquidity availability and price movement.
Frequently Asked Questions
What causes slippage in forex trading?
Slippage occurs when the execution price differs from the requested price due to market movement between order submission and execution. This is more common during high volatility or lower liquidity conditions.
What is a market maker broker?
A market maker broker may internalize client orders and act as the counterparty. Other execution models route orders to external liquidity providers.
How fast are forex orders typically executed?
Execution speed depends on market conditions, server infrastructure, and liquidity availability. Under normal conditions, execution is typically measured in milliseconds.
What is institutional liquidity?
Institutional liquidity refers to pricing and order depth provided by banks, prime brokers, and large financial institutions. Aggregated liquidity can support tighter spreads and more stable execution.
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