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Order Execution Time and Trade Speed at Brokerage Firms
2023 best and fastest trade executions at online discount brokerage firms. Order trade execution
quality at TD Ameritrade, Fidelity, Etrade, TradeStation, Schwab and Interactive Brokers.
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Overview of Trade Execution
Trade execution is the fulfillment of a security order by a broker-dealer. When you submit an order for a stock, ETF, bond, or other security, it is up to the brokerage firm to make sure it gets filled, or executed. The speed at which the order is filled, and the cost of the service, can vary widely from broker to broker, which is why it’s important to pay attention to this vital and often overlooked issue.
Speed at Which Trades are Executed
In fast moving markets, the speed at which an order is filled is very important. This is especially true of stock and option prices, which can move rapidly. If your broker is a few seconds late, other traders will get the price that you wanted. Because mutual fund orders are only filled at market close at NAV, and not market price, trade execution isn’t important with these securities.
Price at Which Trades are Executed
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Execution Speed at Major Brokers
The speed at which a broker fills its customers’ orders can vary widely in the industry. Here’s a
few examples, along with their current commissions:
| Broker | Time (sec) | Commission |
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Interactive Brokers | 0.05 | $0 |
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Charles Schwab | 0.06 | $0 |
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TD Ameritrade | 0.08 | $0 |
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Fidelity | 0.18 | $0 |
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TradeStation | 0.266 | $0 |
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Etrade | 0.39 | $0 |
Obviously, the price-speed comparison can vary widely from one broker to another. Also keep in mind
that the time to execution can vary depending on how the broker routes the order. The order executions
are for covered equity orders with 100-1999 shares.
How Brokers Fill Orders
When you submit an order to buy or sell a security, a broker has several options. It can fill the order internally with an order for the opposite position. It can also send the order to an electronic communications network (ECN) that quickly matches buy and sell orders. This is frequently how limit orders are handled.
The broker could also send your order to a market maker, which is a company that buys and sells stocks on major exchanges at publicly-quoted prices. These market makers sometimes pay brokerage firms to send orders their way. This is perfectly legal, although the broker must state on a trade confirmation if it has done this. Finally, brokers may send orders directly to an exchange, such as the New York Stock Exchange. Any of these options can have delays that could produce a fill that is far from the quoted price.
Also keep in mind that many brokers allow you to request that an order be routed to a certain exchange or market marker. If you want your order go to a certain ECN or other venue, be sure to specify your preference in the order ticket. If it doesn’t offer this option, give your broker a call to request it verbally.
The Securities and Exchange Commission regulates order execution. It tries to ensure the process is as transparent as possible. Brokerage firms and other companies engaged in order fulfillment are required to submit written documents detailing the quality and sizes of orders, along with information about price improvement.
Price improvement occurs when a broker executes an order at a price that is better than the publicly-quoted price. This could take additional time, however. The SEC requires brokerage houses to look at the possibility of getting a better price and compare it to the risk of losing time in the stock market.
Interactive Brokers
IB SmartRouting SM is Interactive Brokers’ method of filling orders. The firm quickly looks for equity and derivative prices that are available when an order is submitted and tries to immediately execute the order electronically.
The Transaction Auditing Group analyzed IB’s order fulfillment system and concluded that it beat the industry average for price improvement by 6¢. The broker surpassed the industry average for options by 24¢. IB’s software also is able to send orders to dark pools, which are private exchanges.
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Charles Schwab
Advanced routing technology is also available at Charles Schwab. The broker promises that the “vast majority” of orders placed on its website will get a price that is more favorable than public quotes. Its own survey shows that more than 98% of market orders were filled at prices better than the National Best Bid/Offer (NBBO). The exact amount of improvement was $0.0129, which translates into $1.29 for every 100 shares.
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E*Trade
E*Trade offers a 2-second execution guarantee on all ETF’s and S&P 500 stocks. To be eligible for the offer, an order must be between 100 and 500 shares to sell, buy, or buy to cover. The eligible time window is from 9:45 am until 3:59 pm, EST. If the broker fails to fill an eligible order within 2 seconds, it will give a free trade to the customer, although it can only be used for a trade eligible for the 2-second guarantee.
The average execution speed of S&P 500 stocks at E*Trade is 0.08 seconds.
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Brokers Trade Execution Summary
When you submit an order, a lot goes on behind the scenes. How good your broker is in part determines the price you get.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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