Why Does Execution Speed Matter When Trading Forex?

How many times has a Forex trader decided to act fast and submit a trade, only to find that they caught their transaction right on the cusp of a price fluctuation? Not only can this be incredibly frustrating, but it can also result in a loss of revenue - which is a devastating concept for any trader or investor. This is why execution speed matters so much when it comes to Forex trading, but what it is, how does it work and why is it so important? In this article, we’ll be taking a closer look at the speed of execution and how it can benefit a Forex trader.

What is Execution Speed?

Execution speed is a term given to the amount of time that a platform takes to receive, submit and confirm a Forex trade. Many brokers rely on their own servers for transactions to ensure safety and security – and the more reliable and efficient these servers are, the quicker execution times can be. By performing an execution speed analysis, you’ll be able to identify whether or not the broker provides a near-instant execution time.

What is a Good Execution Speed?

Any time under 0.1 seconds is considered a high-performing speed of execution. In fact, the closer to 0 the time is, the better. As brokers work on increasing their time for executions, traders can expect gradual progress, until as many hope, the time selected is the time traded, without any form of delay. Although some consider this a mere pipe dream, the reality is that there are a host of technologies being developed that can assist with improving timing for executions.

Generally speaking, the majority of brokers currently calculate their execution times in milliseconds. Although this might seem extreme to the human eye, to an advanced algorithm capable of processing vast amounts of data, even milliseconds can make a huge difference. A speed of more than 0.1 seconds means that the broker isn’t as fast as they need to be, in order to all but guarantee the price you traded at is the price you’ll receive.

Forex fluctuates frequently and when it does, even a slight delay could result in deviations and slippage from your intended trading price.

Is a Slow Time of Execution Really That Big of a Deal?

Yes and no. Yes, if you want to ensure that you trade at the highest possible price. No, if you are an amateur investor that doesn’t worry too much about profit. Execution time is actually considered by industry experts to be one of the most important factors for traders - and for many, a poor or slow speed might not be worth even taking part in a trade or transaction. Whether you’re using an automated or manual system to submit a trade, being able to relax in the knowledge that you’ve made a sale at the exact parameter value that you wanted can be hugely reassuring.

A Technical Look at Execution Speeds and Their Impact on Trading

There are typically two types of Forex traders – those that practice short-term trades and those that prefer prolonged possession. Execution speed plays a role for both types, but much more so for short-term traders. Latency is important here, as a delayed trade for an investor that practices many transactions a day could actually impact their profitability. If an individual was to trade 10 times a day, and each trade was impacted by a slow execution speed, they could find themselves suffering from value-slippage, which in turn will reduce the profit of the trade itself. Now multiply those 10 trades by 100, or 1000, and you’ll begin to see why the speed for a Forex trade execution can be so vital.

The same goes for those that are holding onto larger volumes of Forex, in an effort to sell or trade when the time is right. As the amount being traded will likely be much higher than with short-term or scalping, trades, any change for the worse in value could be absolutely debilitating. As a long-term trader, you’ll want to ensure that the value traded at is the one expected, and a slow execution time could impact this potential greatly, resulting in a lower profit.

Execution times aren’t just important for profit, but for reassurance too, as all traders will want to make sure that they are using the most reliable brokerage platform available to enhance their profitability.

Source: elements.envato.com

This post was authored by an external contributor and does not represent Benzinga's opinions and has not been edited for content.