What is an 'Executing Broker'

An executing broker is a broker or dealer that processes a buy or sell order on behalf of a client. For retail customers, the order sent to an executing broker is first assessed for appropriateness (automated through parameters for a particular client), and if the order is accepted, the executing broker will then immediately carry out the order. If the order is rejected, the customer is notified and the security is not traded. For hedge funds or institutional clients that have already been qualified, an attempt to fill an order is immediately processed.

BREAKING DOWN 'Executing Broker'

Retail investors typically trade online or through a financial advisor who would send their orders to a broker. Because accounts are set up in a way to protect investors, orders are first screened for suitability. For instance, if a client's goal is capital preservation, an order to buy a speculative biotechnology stock on margin would most likely be rejected. When an order is accepted it is processed by the executing broker who has the duty of "best execution."

Executing brokers are often associated with hedge funds or institutional clients that need trade execution services for large transactions. These brokers are usually housed under a prime brokerage service, which offers a one-stop shop service for large active traders. The executing broker within the prime brokerage will locate the securities for a purchase transaction or locate a buyer for a sale transaction. This intermediary service is essential because a transaction of size must be done with speed and at low cost for the client. The executing broker earns a commission on the buy-sell spread, and passes along the execution to the settlement and clearing group of the prime brokerage.

What Does an Executing Broker Do With a Stock Order?

Depending on the type of stock, an executing broker has a number of options. If the stock is traded on an exchange (e.g., NYSE), it can send the order directly to that exchange, to another exchange, or to a third market maker. If the stock trades in an over-the-counter market (OTC) such as Nasdaq, the broker could send the order to that market maker. Limit orders can be routed to an electronic communications network (ECN) that is designed to match buy and sell orders at specified prices. Lastly, the broker may try to fill the order from its own inventory by selling a stock that the broker's firm owns or taking in stock on its books that a customer wants to sell.

  1. Two Dollar Broker

    A two dollar broker is a floor broker who executes orders for ...
  2. Agency Broker

    An agency broker is a broker that acts as an agent to its clients. ...
  3. Broker

    1. An individual or firm that charges a fee or commission for ...
  4. Bond Broker

    A bond broker is a broker who executes over-the-counter bond ...
  5. Outside Broker

    The term outside broker has several applications in finance. ...
  6. Broker Of Record

    A broker of record, in insurance, is an agent designated by the ...
Related Articles
  1. Investing

    Picking your first broker

    If you're a rookie investor, choosing a broker may be your first big investment decision. Learn more on whether you should you go with a full-service broker or a discount broker.
  2. Investing

    What is a Discount Broker?

    A discount broker is a stockbroker who carries out "buy" and "sell" orders at a reduced commission compared to a full-service broker, but provides no investment advice.
  3. Trading

    How Forex Brokers Make Money

    Forex brokers set their prices based on commission, spread, or a combination of both. Traders have to be cautious in the thinly regulated forex market.
  4. Financial Advisor

    How Brokerage Fees Work

    What you need to know about fees when choosing between a full service and discount broker.
  5. Trading

    Price Shading In The Forex Markets

    This practice puts brokers ahead of their clients, but it doesn't have to be a negative for traders.
  6. Personal Finance

    The Role of a Prime Broker

    Understand the role of a prime brokerage, and learn about the services investment banks provide for hedge funds while in the role of being a prime broker.
  7. Investing

    How to Choose a Forex Broker: Everything You Need to Know

    Take your time when looking for a forex broker because a bad decision can be costly.
  8. Personal Finance

    How brokers can avoid a market-maker's tricks

    Ensure that you and your clients are getting the best deal by avoiding these three pitfalls.
  9. Investing

    What Is a Broker-Dealer and Why Should You Care?

    Before deciding who to use for help with your investing, learn what brokers, dealers, and broker-dealers are and what services they provide.
  1. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
  2. Why Do Brokers Ask for Personal Information?

    There are 3 reasons a broker needs personal information: suitability, record-keeping and the law. Read Answer >>
  3. How do I place an order to buy or sell shares?

    Read a brief overview of how to open a brokerage account, how to buy and sell stock, and the different kinds of trade orders ... Read Answer >>
  4. Can a Broker Sell Your Stocks Without Permission?

    In this article, find out if and when it's legal for a broker to sell securities from a customer's account and portfolio ... Read Answer >>
  5. Why Are Securities Held 'In Street Name'?

    Buying or selling securities through a broker means they're held in your broker's name. Read Answer >>
  6. If everyone is selling in a bear market, does your broker have to buy your shares ...

    Learn about who the counterparty to your trades is, and how your broker functions during a market sell off. Read Answer >>
Trading Center