what is market execution in forex

by Jan 28, 2021Forex Order Types

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What is Market Execution in Forex

Market Execution in Forex is similar to Instant order but there is a time when order entry point does not open at desired price because brokers and liquid providers(banks) execute your order at the price that is average and best available price at the time of execution.

This means you can have an open price that is different to one you have seen on the chart before opening a trade.

When there is news published that moves the market this can happen because large volatility comes into the market and the system cannot fulfill your desired order price. But it fills your order with the next available price.

If you have too many  problems please try to find another broker. Brokers should offer you the best execution on their platform. If they cannot fulfill basic requirements then he is not the best choice for you.

The time at which the Forex order will be executed will depend on the broker. The price at which the order will be executed can be in your favor.

Let’s see one example of market execution. In the example, imagine that you want to open a buy order. You need to press a button for a new order and a new window will appear.

In the new window you can see what is the current market price at which you would enter.

Market Execution Window Order

Forex Market Execution in Your Favor

When looking in the image above you can see that the entry point for buy is $1.15794.

If you click on the blue button that says “Buy by Market” you should have one new order with the entry point at $1.15794.

But, what happens?

Market Execution Price lower than market price

After a while the order is open with the better entry point than you wanted in the first place.

The order opens with an entry point at $1.15791 which is lower than you have planned.

See in the image above where the price can move from the moment you press the buy button and until your order is processed by the broker.

When the price starts to move in your direction and that is up because you have open buy order, you will be in more profit than you have planned.

How is that?

If you plan to enter into buy with some amount you are planning the price will move up and not down.

In this case you have planned that you will enter at $1.15794 and the price will move up so you make money.

At this point you hope that you have predicted bottom and the price will start to move up.

Well, predicting market bottom is not easy so sometimes the price does not move UP right away after you enter into the trade.

In this example this is what happened. The price did not move up, but it moved down. You have requested an open buy order at $1.15794, but the broker could not give you that price because the market moved down.

What he can give you, and that is what happened, is the market execution with a lower price which is $1.15791 because the market moved down. The market moved down for 0.3 pip which is 3 pipettes.

1.15794 – 1.15791 = 0.00003

0.3 pips or 3 pipette

Now, you expect the price will move up. You have your strategy that says the market will move up. That is the reason why you opened buy order in the first place.

Good Price Change

What is good here is that you have your start price lower than you have planned and when the market moves Up you will make more money compared to buy order if it would be open at $1.15794.

The price change in this example is just 0.3 pips, but when the market is volatile the change can be several pips.

That change can be 10, 20 pips which is not a small amount of money if you are trading larger lot sizes.

If you have standard lot size open, each pip is worth $10.00. When you have a price change by 10 pips, this will give you $100 change.

Imagine being $100 in profit more than you have expected.

This was a nice example of market execution when the order is open in your favor. Take a look how it looks like when the order does not open at the price in your favor.

Forex Market Execution Against You

There are times when you want to open order and your order does not open at the desired price. Sometimes the price opens at the price that is far from your desired price.

Broker did not open the order at the desired price, but after the market moves in your favor. So, when the order is open you can have order open with lost profit.

Small difference in the price at which you wanted to have your order open and the price at which your is open sometimes can make a big difference.

When looking in the image below you can see that the entry point for buy is $1.15794.

If you click on the blue button that says “Buy by Market” you should have one new order with the entry point at $1.15794.

But, what happens?

Market Execution Price higher than market price

After a while the order is open with the worst entry point than you wanted in the first place.

The order opens with an entry point at $1.15797 which is lower than you have planned.

See in the image above where the price can move from the moment you press the buy button and until your order is processed by the broker.

When the price starts to move in your direction and that is up because you have open buy order, you will be in more profit than you have planned.

How is that?

If you plan to enter into buy with some amount you are planning the price will move up and not down.

In this case you have planned that you will enter at $1.15794 and the price will move up so you make money.

In this example this is what happened. The price did move up. You have requested an open buy order at $1.15794, but the broker could not give you that price because the market moved up.

What he can give you, and that is what happened, is the higher price which is $1.15797 because the market moved up. The market moved up for 0.3 pip which is 3 pipettes.

1.15797 – 1.15794 = 0.00003

0.3 pips or 3 pipette

Now, you expect the price will move up. You have your strategy that says the market will move up. That is the reason why you opened buy order in the first place.

Bad Price Change

What is bad here is that you have your start price higher than you have planned and when the market moves Up you will make less money compared to buy order if it would be open at $1.15794.

If you have standard lot size open, each pip is worth $10.00. When you have a price change by 10 pips, this will give you $100 change.

in this case you would have $100 less in profit than you have expected.

This was a bad example of market execution in Forex when the order is open against you.

Sell Order With Market Execution in Forex

If you would have a sell order with market execution it could happen like in the example with buy order.

Market can move in your favor or against you. You can have less profit or more profit depending where the market moves at the moment when you send an order request.

Conclusion

Market execution is the execution at the market conditions. Market condition can vary and can be in your favor or against you.

Your job is to find a broker that will have less price change so you can trade with your strategy and the end results do not carry too much.

Market conditions change on the volatile market so have in mind to avoid highly volatile markets if you do not want this to happen.

Also, news publishing with high impact on the currencies can make this kind of behaviour. It is good to avoid times when the news is published.

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“Disclosure: Some of the links in this post are “affiliate links.” This means if you click on the link and purchase the item, I will receive an affiliate commission. This does not cost you anything extra on the usual cost of the product, and may sometimes cost less as I have some affiliate discounts in place I can offer you”

Frano Grgić

Frano Grgić

A Forex trader since 2009. I like to share my knowledge and I like to analyze the markets. My goal is to have a website which will be the first choice for traders and beginners. Market analysis is featured by Forex Factory next to large publications like DailyFX, Bloomberg... GetKnowTrading is becoming recognized among traders as a website with simple and effective market analysis.

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