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Best execution

A regulatory obligation on brokers to take all sufficient steps to obtain the best overall result for clients, considering price, cost, speed and likelihood of execution.

Best execution is not a promise of the best price on every trade. It is a process requirement: the firm must have a policy, apply it consistently, monitor outcomes and be able to demonstrate it. In the UK and EU, firms must publish an execution policy and clients must consent to it.

For traders, the practical value is the paper trail. If fills are consistently poor, the execution policy and the firm's own monitoring data are what a complaint to the regulator or ombudsman is built on.

Example: a client's 60 market orders show an average 1.2 pips of negative slippage with no positive instances. Pure chance would produce some positive fills, which makes the pattern worth raising formally.

Related: slippage, hybrid-book, fca, last-look

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Slippage on a market orderA buy order clears four price levels, so the average price paid is worse than the price first quoted.Buy 1,000 shares at marketpricesell orders resting (bar length = size)20.04300 shares20.03200 shares20.01200 shares20.00300 sharesnothing resting at 20.02order sweeps up the bookaverage fill 20.02SLIPPAGE0.02 a share$20.00 in totalintended 20.00Each level fills at its own price; the average is what you really paid.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.

Educational only, not advice. Spotted an error? Post in Site Feedback.