Table of Contents

Execution-Only: What It Is, How It Works

By

Updated May 03, 2024

Reviewed by

What Is Execution-Only?

The term execution-only refers to a trading service restricted to the execution of trades. Execution-only services do not include any advice about the merits or risks of investments or their suitability. The services provided through execution-only firms are primarily done online or over the telephone. As such, they typically come with lower fees than other offerings. Since they don't involve advisory services, execution-only services are well-suited to experienced traders who are aware of the risks and rewards of vario♓us 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.

How Execution-Only Works

Execution-only is a model offered by some 澳洲幸运5官方开奖结果体彩网:brokerage firms to their investment clients. This service is limited to the execution of trades and does not include any consult🏅ations or advisory services from financial professionals that would otherwise influence or sway an investor's decisions.

Traders who use execution-only firms tend to be very experienced and have a great deal of knowledge about the markets. These individuals include 澳洲幸运5官方开奖结果体彩网:day traders, active traders, 澳洲幸运5官方开奖结果体彩网:swing traders, technical traders, and others who time the market♔s. Since they have a background in trading, these individuals typically don't need the advice of a professional working with a brokerage firm.ꦗ If needed, they tend to do their own research.

The purpose of execution-only services is to increase efficiency in trading. This is normally done through 澳洲幸运5官方开奖结果体彩网:nominee accounts. Using these accounts allows the investments to be registered in the brokerage's name even though they belong to the owner. The brokerage takes care of buy-and-sell documentation, collecting 澳洲幸运5官方开奖结果体彩网:dividends, andಌ forwarding information to the client about shareholder action.

Another key factor is cost. Since these firms only offer trade execution, improvements in 澳洲幸运5官方开奖结果体彩网:trading platform technology led to plummeting costs for such services. For retail investors, these execution-only services offer a very economical trading platform, and many of them offer stock trades commission-free or for under $1.

Important

Execution-only services are also referred to as agency♒-only services.

Execution-Only Services

Execution-only brokerages do not provide the kind of advice or recommendations offered by full-service brokers. But, many of these firms are 澳洲幸运5官方开奖结果体彩网:subsidiaries of larger financial institutions.

This means execution-only firms may offer 澳洲幸运5官方开奖结果体彩网:investment research prepared by their parent companies 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 of trends to assist them in the decision-making process.

The brokerage that executes the trade won't have an opinion on whether a trade should be executed, so leveraging an execution-only firm places an additional layer of risk on each trader or investor.

Fast Fact

Investors can execute trades on many different types of securities using execution-only services, including stocks, bonds, 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs), mutual funds, and 澳洲幸运5官方开奖结果体彩网:foreign exchange (FX).

Cost of Execution-Only Services

Execution-only services cost a fraction of what traders pay at full-service brokerage or even most discount brokers. It is therefore primarily suitable for experienced traders, 澳洲幸运5官方开奖结果体彩网:day traders, and technical traders who mಌay make numerous tꦜrades on any given day.

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.

Why Do People Use Execution-Only Services?

Execution-only account services are designed for individuals who are experienced and have a great knowledge of the financial markets. People tend to use them because they are efficient and low-cost. Execution-only services allow traders and other investors to buy and sell securities at a lower cost than traditional full-service and discount brokers because they only facilitate trades. This means they don't provide any other services, such as advisory or consulting services. Traders must know the risks and rewards before they make any trades.

What's the Difference Between Execution-Only and Full-Service Brokerages?

There are several differences between execution-only and full-service brokerages. The main difference lies in the types of services they provide their clients. Execution-only firms are restricted to the buying and selling of securities—and typically, nothing else. Since they only offer trade execution services, their costs are fairly low. As such, they are meant for experienced traders who don't need any financial advice.

Full-ser𓄧vice brokerage firms allow investors of all backgrounds to buy and se🦋ll securities. They also provide advisory services, research, and other services. As such, full-service firms charge higher fees and commissions.

What Are Nominee Accounts?

Nominee accounts hold shares and other securities purchased by inves🍌tors. The stockbroker or brokerage firm that facilitates trading is the nominee, which means they are named on the account and are𝓡 tasked with safeguarding it. The legal ownership of the account, though, remains with the investor.

The Bottom Line

There are many different types of brokerage firms, ranging from full-service to execution-only firms. While anyone can use full-service firms, execution-only brokerages are meant for people who are experienced. If you are very knowledgable about the markets and how they work, an execution-only firm can be an efficient and cost-effective way to make your trades. As always, make sure you research any firms you're considering before you decide on one.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Fidelity. “.”
Interactive Brokers. “.”

Compare Accounts

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

澳洲幸运5官方开奖结果体彩网