How Stock Trades Are Executed And Why Some Brokers Are Better
I ran across this topic at My Money Blog and never realized how important this was when you are trading as I thought all brokers were equal in the speed they executed your order… The SEC published a report and ranked brokers on how they executed orders as well as how this can affect your buy and sell prices. Here are the key points from the SEC report:
- Trade Execution Isn’t Instantaneous
- Your Broker Has Options for Executing Your Trade
Many investors who trade through online brokerage accounts assume they have a direct connection to the securities markets. But they don’t. When you push that enter key, your order is sent over the Internet to your broker—who in turn decides which market to send it to for execution. A similar process occurs when you call your broker to place a trade…
Just as you have a choice of brokers, your broker generally has a choice of markets to execute your trade…
This is a really interesting report and you can read it in entirety here. They also have some nice illustrations for people that learn that way.
My Money Blog also posted a nice link to a Barron’s ranking of online brokers by the speed and quality of their order executions. The link he gave isn’t working but you can get the top 5 rankings at his blog here. Brokers like Scottrade, eTrade, and TradeKing did pretty well it seems.
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