Best Execution is the process of executing a financial transaction in a manner that results in the most favorable price for the customer. In order to achieve best execution, firms must take into account a variety of factors, including price, speed, and liquidity. Best Execution is a legal obligation of broker-dealers under FINRA Rule 2111.
When acting as an agent on behalf of their customer, firms must seek to obtain the best possible result for the customer’s order. This means trying to get the best possible price, taking into consideration market conditions, among other factors.
What are the three ways to execute an order?
1. You can trade with another party directly
2. You can trade through a broker
3. You can trade through an exchange
Each of these has different advantages and disadvantages, which must be taken into account when trying to achieve best execution.
Direct trading is often the most expensive way to trade, as it involves the highest fees. However, it may be the best option if you are trading a large order and need to ensure that it is executed quickly and at the exact price you want.
Brokers are usually less expensive than direct trading, but they may not be able to get you the exact price you want. Exchange traded funds (ETFs) are often traded through brokers.
Exchanges are the least expensive way to trade, but they can be slow and may not always have the liquidity you need. For example, if you are trading a large order, it may be difficult to find someone willing to trade with you on the exchange.
The best way to achieve best execution is to take into account all of these factors and choose the option that will result in the best price for your order.