What Is Execution Speed in Forex and Why Is It Important

The execution speed in foreign exchange refers to the time interval between a trader placing an order in the foreign exchange market and the order being executed. Execution speed is an important indicator of the service quality of foreign exchange trading platforms and brokers. It directly affects traders' transaction costs and benefits.

Why is Execution Speed Important?

In the Forex market, prices move very quickly and frequently, sometimes with huge swings occurring within seconds or milliseconds. If a trader's order cannot be executed in time, the following situations may occur:

• Slippage: Slippage refers to the difference between the actual price at which an order is executed and the expected price when the order is issued. Slippage can work for or against a trader, but more often than not, slippage increases a trader's costs and risks, especially in high-volatility market environments.

• Requote: Requote means that after the order is issued, because the market price has changed, the broker is unable to execute the order at the original price and provides a new price to the trader. Traders can choose to accept or reject the new price, but this will delay the execution of the order and may miss favorable trading opportunities.

• Rejection: Rejection means that after the order is issued, because the market price has exceeded the effective range of the order, the broker cannot execute the order and directly cancels the order. This prevents traders from entering or exiting the market and may result in losses or missed gains.

Therefore, traders should choose a foreign exchange trading platform and broker that can provide fast and stable execution speeds to reduce the occurrence of the above situations and improve transaction efficiency and effectiveness.

How to Measure and Improve Execution Speed?

Generally speaking, execution speed is affected by the following factors:

• Trading platform: Different trading platforms may have different technical architecture and functions, which affects the order sending and processing speed. For example, MetaTrader 4 (MT4) is a popular Forex trading platform that provides fast and transparent execution and allows for high-frequency trading.

• Brokers: Different brokers may have different execution models and liquidity sources, which affect the order execution speed and price. For example, a straight-through processing (STP) broker will pass the order directly to the liquidity provider without intervening in the execution of the order; while a market maker (MM) broker will become the counterparty to the order by itself and Interventions on orders are possible.

• Network connection: The speed and stability of your network connection will also affect the speed of order transmission and execution. If the network connection is poor, it may cause delays or loss of orders. Therefore, traders should choose a location with good network connectivity to trade and try to avoid using public or unsecured networks.

• Market environment: The volatility and liquidity of the market environment can also affect the speed of execution. In a market environment of high volatility and low liquidity, orders may have difficulty filling at the expected price, resulting in an increased risk of slippage, requotes, or rejections. Therefore, traders should pay attention to market dynamics and adjust trading strategies and risk management according to the market environment.

To measure execution speed, traders can use some tools or indicators to monitor order sending and execution times and compare with other platforms or brokers. For example, Wise is an online platform that provides international remittance services. It can provide a counting machine on its website so that users can instantly understand the remittance fees and arrival time.

To increase execution speed, traders can do some of the following:

1. Choose a technologically advanced and functional trading platform such as MT4.

2. Choose a broker that operates on an STP or ECN model and offers multiple liquidity sources.

3. Choose a location to conduct transactions with a fast and stable internet connection, and use wired or wireless broadband services.

4. Choose a trading session when market volatility and liquidity are higher, such as when the London and New York markets overlap.

5. Use some risk management tools or strategies to reduce the risk of slippage, requotes, or rejections, such as limit orders, guaranteed stop orders, maximum deviations, etc.