Quite often perception of Best Execution for retail trades is reduced to a single factor: the execution price.
However, brokers are required to consider and assess the relative importance of relevant execution factors when attempting to achieve Best Execution for their clients, with the key objective of obtaining the best possible outcome for the order.
Let’s have a quick look at what the key execution factors are and how they contribute to Best Execution – being mindful that the best possible outcome for the order may not always equate to obtaining the best price or lowest execution cost.
1. Price
It’s undoubtedly one of the most important factors when looking at Best Execution and it does what it says on the tin: it’s the price at which a transaction is executed. For Equiduct, it is the price of equities and ETFs listed and executed at our platform. As well as being the most “visible” factor, it is also easy to compare with other trading venues. The advantage we have at Equiduct is that our price formation is built around multiple pan-European addressable-by-all sources of liquidity, so we can be confident in offering the best prices for orders to execute against.
2. Costs
This relates to all costs associated with executing an order. It can be divided into implicit costs – which aren’t within the broker’s power to affect, such as market impact – and explicit costs – which brokers can potentially have some power to influence such as execution or clearing fees. After price, costs are usually the second most important factor when it comes to Best Execution.
- Orders submitted into our Apex service are free of charge so there are no execution fees.
- Equiduct’s post-trade market impact is lower than any other lit venue in Europe.
- Due to Equiduct aggregating liquidity from multiple pan-European addressable-by-all venues, the order-to-trade ratio is minimised, resulting on lower clearing fees borne by the broker.
3. Speed
This refers to the time it takes to execute an order. This is an important because as prices can move as an order is being placed, the longer the execution time, the more the price is likely to differ from the initial price target set up by the client, especially in volatile markets. So being able to execute a trade in as little time as possible can help deliver Best Execution to a broker’s end clients. All Apex orders that are deemed marketable by Equiduct are immediately executed against a Liquidity Provider.
4. Likelihood of execution and settlement
The likelihood of execution and settlement of a particular transaction can be very important as it could determine whether a transaction is completed or not.
When trading on a single order book, orders will only execute against other orders within that order book. As we include multiple pan-European addressable-by-all order books within our price formation, an Apex order will automatically execute against a Liquidity Provider based on orders (liquidity) from more than one single order book.
What’s more, 35% of Apex orders with a persistent TIF are executed prior to becoming marketable v. the opposite side of the EBBO, and where an order becomes marketable, we will automatically execute the order against a Liquidity Provider. Liquidity Providers are mandated to provide liquidity continuously on Equiduct, thus ensuring an order is always executed when deemed eligible.
5. Size
The size of the order can be a very important factor as it will have an impact on the execution price. Due to the inclusion of multiple pan-European addressable-by-all order books within our price formation, the size available on Equiduct will supersede that available on a single lit venue. For example, Equiduct provides an average of €42k within the top 35 stocks in Spain at the best price whereas the primary market in Spain only has €20k.