Execution model

What an execution model means

An execution model is the way a broker handles your orders after you press the button. It answers a basic question: who takes the other side of your trade, and how does the price reach you? The main answers are the dealing desk model, where the broker itself acts as the counterparty and sets the prices, and the no dealing desk models, where orders are passed to outside liquidity providers through straight-through processing (STP) or an electronic communication network (ECN).

The term is mostly used for forex and CFD brokers, but the same question exists for stock brokers too: does the order go to an exchange, to a market maker that pays for order flow, or to the broker's own internal book? In every case the model affects spreads, fill speed, slippage and the broker's incentives.

Brokers are required by many regulators to publish an order execution policy that describes how they achieve the best possible result for clients. The execution model is the factual core of that document.

How it works

Execution runs through the same basic steps, but the routing differs.

1. You submit an order, such as a market or limit order, from the platform.
2. The broker's order management system checks margin, size limits and market status.
3. Routing decides what happens next. In a dealing desk model, the order may be filled from the broker's own book. In STP, it is sent on to one or several liquidity providers. In ECN, it is placed in a network where it can match with other participants.
4. The fill is returned to your platform with a price and time.
5. Your position is recorded, and the broker earns its income from the spread, markup, commission or financing charges.

Related ideas include last look, where a provider can reject an order after a short check, and price improvement or slippage, where the fill differs from the displayed quote. Order types and market conditions both influence how these play out.

A worked example

These numbers are illustrative. Three accounts quote EUR/USD with a bid of 1.10000, and you buy 1 standard lot at market.

Dealing desk account:

• Quoted ask: 1.10015 (fixed spread of 1.5 pips)
• Commission: 0
• Cost: 1.5 pips x 10 USD = 15 USD

STP account with markup:

• Ask from provider: 1.10010, plus 0.4 pip markup = 1.10014
• Cost: 1.4 pips x 10 = 14 USD

ECN account:

• Raw ask: 1.10002 (0.2 pip spread)
• Commission: 7 USD per lot round turn
• Cost: 0.2 x 10 + 7 = 9 USD

On a quiet day the ECN looks cheapest. At a big news release the ECN raw spread may widen to 2 pips (20 USD plus 7 commission), while the fixed-spread desk account might requote or widen as well. The model tells you which cost is stable and which varies.

Why it matters

The model shapes cost structure and potential conflicts. In a principal model the broker may gain when clients lose. In agency models the broker earns on volume, which aligns more closely with keeping clients trading, though it does not guarantee neutrality.

It also affects speed and certainty: some models have more requotes, some may suffer partial fills or wider spreads in thin markets. For scalpers and news traders, these differences can be large. For long-term investors, they are usually minor compared with commissions and financing.

How to use it in practice

1. Read the order execution policy and the conflicts of interest policy.
2. Identify the account types and what execution each uses.
3. Compare all-in costs, adding spread, commission and markup.
4. Check how pending orders, slippage and requotes are treated.
5. Test on demo and with small live trades, noting fill quality.
6. Ask support direct questions about last look, internalization and hedging.
7. Check whether the model depends on account size or trading behavior.

Common mistakes and misconceptions

• Treating labels as proof. ECN and STP are used loosely in marketing.
• Believing one model is always honest and another always dishonest.
• Comparing only quiet-hour spreads.
• Ignoring that many brokers run hybrid models.
• Thinking best execution means the lowest cost on every trade. It is a process obligation, not a promise of outcome.
• Assuming execution is the same on every instrument.

Risks and limitations

No execution model removes market risk or the high risk of loss on leveraged CFDs. The facts about routing are often only partly visible to clients, so documents and behavior matter more than slogans. Rules on best execution and disclosure differ by jurisdiction, and a model suited to one trading style may fit another poorly.

How Brokeli looks at it

We record the execution model each broker states for each account type, along with the fee structure that follows from it, and we compare these claims with the legal documents where possible. Differences between marketing and policy are noted. This information appears in our published research snapshots, and we do not prefer one model for every reader.