Evaluating a Broker's Execution Policy
A comprehensive checklist for reviewing and assessing a forex broker's execution policy before opening an account.
## How to Use This Checklist This checklist helps you systematically evaluate a broker's execution policy. For each item: - ✅ **Green flag** - Good for clients, shows transparency - ⚠️ **Yellow flag** - Acceptable but watch for context - 🚩 **Red flag** - Concerning, needs explanation <MarginNote>No broker will check every box. Use this to identify patterns and ask informed questions.</MarginNote> --- ## Section 1: Execution Model Clarity ### Can you easily determine the execution model? - ✅ Model clearly stated (Market Maker, ECN, STP, Hybrid) - ⚠️ Model described but uses vague terms - 🚩 Model not disclosed or buried in fine print ### Is the model consistent throughout the policy? - ✅ Consistent language throughout document - ⚠️ Some inconsistencies but generally clear - 🚩 Contradictory statements about execution model --- ## Section 2: Best Execution Commitment ### Strength of commitment - ✅ "We **will** provide best execution" - ⚠️ "We **endeavor** to provide best execution" - 🚩 "Best efforts basis" or no commitment ### Are execution factors defined? - ✅ All five factors listed (price, cost, speed, likelihood of execution, settlement) - ⚠️ Some factors mentioned but incomplete - 🚩 No factors specified or only price mentioned ### Is factor weighting explained? - ✅ Clear explanation of how factors are prioritized - ⚠️ General statement without specifics - 🚩 No mention of how factors are weighted --- ## Section 3: Order Routing ### How much discretion does the broker have? - ✅ Systematic routing with defined criteria and limited discretion - ⚠️ Discretionary routing bounded by best execution - 🚩 "Sole discretion" without constraints or transparency ### Is routing methodology described? - ✅ Detailed explanation of order routing logic/algorithm - ⚠️ General description without specifics - 🚩 No explanation of routing process ### Multiple execution venues/LPs? - ✅ Multiple LPs/venues specified - ⚠️ "Multiple sources" claimed but not specified - 🚩 Single venue or not disclosed --- ## Section 4: Conflicts of Interest ### Are conflicts disclosed? - ✅ <HighlightText variant="yellow">Clear disclosure</HighlightText> of all material conflicts - ⚠️ Partial disclosure or vague language - 🚩 No conflict disclosure section ### Market maker conflict management *If broker is a market maker:* - ✅ Explains how they manage the conflict of being counterparty - ⚠️ Acknowledges conflict but limited explanation - 🚩 No mention of the inherent conflict ### Payment for order flow - ✅ Clearly states whether they receive PFOF and from whom - ⚠️ Mentions rebates but unclear impact on routing - 🚩 No mention of LP rebates or payments --- ## Section 5: Price Transparency ### How are prices determined? - ✅ Clear explanation of price aggregation or market making - ⚠️ General statement about competitive pricing - 🚩 No explanation of pricing methodology ### Spread disclosure - ✅ Spread structure clearly explained (raw + commission or markup) - ⚠️ Spreads mentioned but structure unclear - 🚩 No information on how spreads are determined --- ## Section 6: Slippage and Requotes ### Slippage explanation - ✅ Honest explanation of when and why slippage occurs - ⚠️ Mentions slippage but limited detail - 🚩 No mention or disclaims all responsibility ### Requote policy - ✅ Commits to minimizing requotes with targets/statistics - ⚠️ Explains when requotes may occur - 🚩 Reserved right to requote without constraints ### Last look disclosure *For ECN/STP brokers:* - ✅ Clearly states whether last look is used and why - ⚠️ Mentions LP rejection possible but no detail - 🚩 No mention of last look (may be hidden) --- ## Section 7: Order Handling ### Order types supported - ✅ Clear explanation of how each order type is executed - ⚠️ Lists order types without execution details - 🚩 Vague about order type handling ### Order priority - ✅ Commits to time-price priority and equal treatment - ⚠️ General statement about fairness - 🚩 Reserves right to prioritize orders at discretion ### Partial fills - ✅ Explains when and how partial fills occur - ⚠️ Mentions possibility but no detail - 🚩 No mention of partial fill handling --- ## Section 8: Abnormal Market Conditions ### Volatile market handling - ✅ <HighlightText variant="blue">Detailed explanation</HighlightText> of execution during volatility - ⚠️ General warning about abnormal conditions - 🚩 Broad disclaimer without specifics ### News event execution - ✅ Specific policies for major news releases - ⚠️ General warning about wider spreads - 🚩 Reserved right to restrict trading without criteria ### Low liquidity periods - ✅ Explains how execution works during low liquidity - ⚠️ Warns about potential issues but vague - 🚩 No mention of low liquidity handling --- ## Section 9: Monitoring and Transparency ### Execution quality monitoring - ✅ Specific monitoring processes described with frequency - ⚠️ General statement about monitoring - 🚩 No mention of monitoring execution quality ### Public reporting - ✅ Publishes execution quality statistics (fill rates, slippage, etc.) - ⚠️ Mentions internal review but no public reporting - 🚩 No transparency into execution quality ### Policy review frequency - ✅ Commits to regular review with specified frequency - ⚠️ General statement about updating as needed - 🚩 No mention of review process --- ## Section 10: Client Rights and Recourse ### Complaint process - ✅ Clear process for execution complaints specified - ⚠️ General customer service contact provided - 🚩 No mention of complaint handling ### Trade dispute resolution - ✅ Specific process and timeline for trade disputes - ⚠️ References terms of service generally - 🚩 Broad discretion to resolve disputes --- ## Scoring Your Evaluation Count your flags: ### Mostly Green (✅) **Excellent.** This broker demonstrates strong transparency and client-focused execution. Still verify through independent reviews and testing. ### Mixed Green/Yellow (⚠️) **Acceptable.** Most brokers fall here. Focus on yellow flags in critical areas (conflicts, routing, monitoring) and ask specific questions. ### Multiple Red Flags (🚩) **Concerning.** If you see 3+ red flags, especially in core areas, consider other brokers or demand answers before proceeding. --- ## Questions to Ask Based on your checklist results, prepare questions: 1. For each 🚩 red flag, ask the broker directly for clarification 2. Request execution quality statistics if not published 3. Ask about recent policy changes and why they were made 4. Request example scenarios (e.g., "What happens to my order during NFP?") --- ## Next Steps After completing this checklist: 1. **Document your findings** - Keep notes on each section 2. **Compare brokers** - Use this checklist on 2-3 brokers 3. **Ask questions** - Contact brokers about concerning items 4. **Test with demo** - Verify execution claims in demo environment 5. **Start small** - If proceeding, begin with small account to verify execution quality <HighlightText variant="pink">Remember:</HighlightText> The execution policy is just one piece of broker evaluation. Also assess regulation, financial strength, platform quality, and customer reviews.