What Is Execution-Only?
Execution-only is atrading service that is restricted to only the execution of trades, without the client receiving any advice about the merits or risks of the investments or their suitability.
Execution-only, also known as agency only, services are predominantly internet-based or telephone-based, and are typically lower cost than more robust offerings. Since no advice is provided to customers, execution-only services are most suitable for experienced investors who are aware ofthe risks and rewards of various types of investments.
Key Takeaways
- Execution-only is a brokerage model that only involves the execution and reporting of orders handed to them by customers.
- Execution-only therefore means that ancillary services found in full service brokerages are absent, such as in-house research, or financial advice and planning.
- Because of this, execution only trading platforms tend to be very low cost and economical for traders and investors who have a handle on what they wish to do in the market.
Understanding Execution-Only
To operate more efficiently, execution-only services make use nominee accounts. This means that the client's investments are registered in the name of the brokerage that operates the execution-only service, although the client remains the beneficial owner. While the brokerage handles all the documentation related to the buying and selling of securities, as well as collectingdividends and depositingthem in the client's account, it will also forward information that needs shareholder action directly to the client.
As these firmsonly offer trade execution, improvements in trading platform technology have led to plummetingcosts forsuch services. For retail investors, these execution-only services offer a very economical trading platform, andmany of them offerstock trades for single-digit dollar commissions.
Research Offered by Execution-Only Services
Although they do not provide the kind of advice or recommendations offered by full service brokers, many execution-only services that are subsidiaries of larger financial institutions do make some investment research from their parent companies available to their clients. So while these clients ultimately have to make the investment decision on their own, they receive a wealth of information such as real-time market data, trading ideas, and analysis oftrends to assist them in the decision-making process.
The brokerageexecuting the trade will not have an opinion on whether a trade should be executed, so leveraging an execution-only firmplaces an additional layer of risk on each trader or investor.
Cost of Execution-Only Services
The cost of execution-only services is a fraction of what it costs for putting through trade at a full-service brokerageor even most discount brokers. It is therefore primarily suitable for experienced traders, day traders and technical traders who may make numerous trades on any given day. However, traders should be aware of the risks of over-trading, which can lead to potentially steep losses that more than offset the low cost of trading through an execution-only service.
Using these services, investors canexecute trades onmany different types ofsecurities, including stocks, bonds, mutual funds, exchange-traded funds (ETFs)and foreign exchange.
FAQs
Execution-only is a trading service that is restricted to only the execution of trades, without the client receiving any advice about the merits or risks of the investments or their suitability.
What is the difference between advisory and execution only? ›
It can provide a cheaper way for investors to trade on financial markets than advisory services. An execution-only broker differs from an advisory broker as it will not provide any financial advice.
What is the difference between best execution and execution only? ›
In summary, best execution relates to the manner in which a transaction is carried out (i.e. on terms most favourable to the client), whereas execution-only relates to the advice (or rather the lack of) received in relation to making an investment.
What is execution only in mutual fund? ›
They have come to be called execution-only platforms (EOPs). As defined by SEBI, EOPs are digital/online platforms that facilitate transactions such as subscription, redemption, and switch transactions in direct plans of schemes of mutual funds.
What does execution only mean? ›
execution-only. adjective. used to describe a broker (= someone who buys and sells shares for other people) that does not offer advice or other services to customers: They deal by telephone on an execution-only basis.
What is meant by best execution? ›
Best execution is a legal mandate that requires brokers to seek the most favorable options to execute their clients' orders within the prevailing market environment.
What is an execution only disclosure? ›
This variation to your mortgage contract will be completed on an execution only basis, this means that you are making all the decisions about the suitability of the mortgage for yourself and you will not receive any advice from Nationwide.
Which is better advisory or consulting? ›
Advisors have more autonomy in the way they manage their time. While consultants are responsible for timely completion of tasks, an advisor is available to listen to and respond to clients' business challenges as they come up.
How does advisory work? ›
Advisory is the practice of offering information and advice to other professionals to manage future risks, often based on data modeling and the application of lived experience. It's a long-term relationship that helps a business to proactively prepare for change and uncertainty.
What is order execution-only? ›
This is a form of trade execution that is restricted purely to executing trades. Execution-only brokers will complete an order from a client in the most efficient way possible but will not give any advice that could influence their client's investment decisions.
FINRA Rule 5310 (Best Execution and Interpositioning) requires that, in any transaction for or with a customer or a customer of another broker-dealer, a member and persons associated with a member shall use reasonable diligence to ascertain the best market for the subject security, and buy or sell in such market so ...
Why is execution more important? ›
Effective execution turns the strategy into action. It requires discipline, attention to detail, effective communication, and the ability to adapt to unforeseen circ*mstances.
What does execution only mortgage mean? ›
You have chosen to buy your mortgage without any advice or recommendation from us, this mean you are selecting the right mortgage for your needs. This is called buying a mortgage on an 'execution-only' basis. This means you will not receive some FCA protections on whether the mortgage is right for you.
Why mutual funds are a rip off? ›
However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.
What happens if a mutual fund investor dies? ›
The mutual funds will be transferred to the designated nominee if you do not have a will, as stated by the deceased when purchasing the mutual funds' units. However, there may be times when the nominee differs from the legal heir.
What is an execution only declaration? ›
You are making a variation to your mortgage on an “execution only” basis. This means that you have decided for yourself that the mortgage as varied, including any features and benefits, best suits your needs and circ*mstances.
What is order execution only? ›
This is a form of trade execution that is restricted purely to executing trades. Execution-only brokers will complete an order from a client in the most efficient way possible but will not give any advice that could influence their client's investment decisions.
