Your personal execution checklist

What you will learn

• A pre-trade checklist covering venue, time, liquidity, order type and size
• Simple decision rules for choosing between market, limit and stop orders
• How to measure execution cost against the arrival price, in euros and basis points
• How to use an execution log to improve your routine over time

Explanation

This lesson pulls the course together. A trading plan and a journal were covered in the trading course; here you add a specific execution layer that answers one question: "Did I lose money through how I traded, not what I traded?"

Pre-trade checklist

1. Instrument and venue: Which venues can my broker use? What does the execution policy say? Is the venue in continuous trading, an auction or a volatility interruption?
2. Time: Am I trading in the first minutes after the open, in extended hours or near a scheduled event? If yes, expect wider spreads and less depth.
3. Spread: What is the spread in basis points? Is it normal for this instrument? Note your own "normal" value.
4. Depth: How much size is shown at the best price and within a few ticks? Rule of thumb: if your order is larger than the best-price size, split it or use a limit order.
5. Order type: Choose deliberately (see below).
6. Costs: Order fee, venue fee and expected spread cost. Is the total small compared with the expected move of the trade?
7. Exit orders: Where is the stop, which type, and what loss in R would a gap through it cause?

Decision rules for order types

• Liquid instrument, small order, main session, urgency: a marketable limit order (a limit a few ticks beyond the current ask or bid) gives almost market-order speed with a price cap.
• Wide spread or thin book: a limit order at or inside the spread; accept that it may not fill.
• Auction: use a limit order; a market order accepts any auction price.
• Protective exits: stop-market if exiting matters more than price; stop-limit if price matters more, accepting the risk of no fill.

Post-trade: measuring execution cost

The arrival price (the mid price when your order reaches the market) and implementation shortfall were explained in the lesson on slippage. In your routine you apply them to every trade and add the fees:

Slippage per share = fill − arrival (for a buy) or arrival − fill (for a sell)

Execution cost in bp = (slippage × quantity + fees) ÷ (arrival × quantity) × 10,000

Record every trade in an execution log: time, venue, order type, size, arrival price, average fill, fees and cost in bp. After 20 to 30 trades, compare groups: market versus limit orders, opening minutes versus later, small versus large orders. Change one habit at a time.

Worked example

Hypothetical example: Three trades from an execution log. Fee: €4.90 per order.

1. Total cost: €13.90 + €19.90 + €14.90 = €48.70.
2. Total traded value at arrival: €6,000 + €7,200 + €10,000 = €23,200.
3. Average cost: €48.70 ÷ €23,200 × 10,000 ≈ 21.0 bp.
4. Trade 2 was the most expensive. The log shows it was a market order in the first minutes after the open: a pattern worth testing.

A round trip at 21 bp per side costs about 0.42% of the position. A strategy with a small expected move per trade may not survive this. Excluded: taxes and any price move after the fill.

Common mistake

Practice activity

Fee: €3.90 per order. Trade A: market buy 400 shares, arrival mid €25.00, average fill €25.06. Trade B: limit buy 400 shares, arrival mid €25.00, average fill €24.99. (a) Calculate the cost of each trade in euros and basis points. (b) Which checklist item would you review?

Key takeaways

• Check venue, time, spread, depth, order type, costs and exit risk before every order.
• Use limit or marketable limit orders when spreads are wide, books are thin or an auction is running.
• Measure execution cost against the arrival mid, in euros and basis points, including fees.
• Keep an execution log and change one habit at a time based on many trades.

Next step

You have completed this course; continue with the course "Sector & Industry Analysis" to learn how to compare industries and the companies within them.