Best Execution

Quality of execution is often overlooked even by professional investors

Best Execution

Best Execution is a concept that even professional investors often overlook. Many think it is much more important to choose the right investments. Whether you pay a small fraction more than the best possible price, it does not matter that much. And they are right about the first part. However, the small amounts that investors loose because of inferior order execution are also important. In the long term they add-up, just like trading costs, and may cause your portfolio to underperform. When trading the stocks of large and liquid companies the costs of poor execution are only small fractions of a percent on each trade. For less liquid stocks however, the costs could even reach 1% or more;

Today there are many financial markets. In the US a stock can trade in more than 50 places. This is a recent trend and many people still don't realise it. It is coming to Europe too. Polish or Bulgarian stocks only trade on one stock exchange, except for GDRs listed in London for example. But GDRs are a separate financial instrument, often traded in another currency, so it is easy to tell the difference. For the bigger markets in Europe and in the US the same stock (the same financial instrument, that settles at the same depository) is accepted and actively traded on many places. These places can be called stock exchanges, multilateral trading facilities (MTFs), dark-pools, etc.

How could you know your brokers is sending your order to the place that will result in the best overall cost (or proceeds) for you? It is difficult to know, when very often even your broker does not know how orders are routed exactly and where. It is hard for any broker, especially your local one in Poland, Bulgaria or Romania, to be a member and have direct access to all the possible places where a stock is traded. This is why we all use a network of executing brokers. The question is how good are they in providing Best Execution and how do we select them.

At Intercapital Markets we have worked for years to establish relationships with brokers who share our own trade execution policies, i.e. they act as agents only on the side of clients so the brokers' interest is aligned to the interest of clients, and not trading against them. For international stocks markets we send our clients' orders to Neonet. Based in Stockholm, this is a broker specialising in providing Best Execution for stock market trades in Europe and the US. They use cutting edge technology and software that is upgraded constantly to make sure orders are executed at the best possible terms for clients.