In 2019, major brokerages made the critical decision to cut stock commissions to zero. With brokerage firms no longer competing on price alone, they are more able to focus on improving the customer experience through order execution. In 2020, Tastyworks was the best online broker for order execution.
Trade Execution Speed/Price was the most important attribute in Investor's Business Daily's ninth annual Best Online Brokers survey, according to investors polled in the survey. A new category this year, Trade Execution Speed/Price replaces the Low Commission & Fees attribute, which was removed due to the industry decision to eliminate trade commissions.
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Meanwhile, investors have shifted their attention to the hidden fees associated with trading. Remember, free trades aren't really free. Most brokers send customer orders to market makers in exchange for cash, called order flow payment. Also, some brokers are able to get better prices than others, a long-term way of saving money for their customers.
Best Online Broker For Order Execution: Tastyworks
IBD and TechnoMetrica recognize five Best Online Brokers in each category. In its second appearance in the survey, Chicago-based Tastyworks handily claimed the top spot in the Trade Execution Speed/Price attribute. It garnered a Customer Experience Index score of 94.2, based on survey responses from Tastyworks customers.
The firm regularly analyzes execution quality to determine the proper handling of all order types. This process ensures measures are in place to route customers' orders to the destination that will have the best likelihood of price improvement. Price improvement statistics play a key role in the routing decision process.
Tastyworks is never satisfied, and is always looking for ways to "improve our speed of execution, performance of our platform and results of our execution partners. We are customers of our own products. We demand a lot and expect the same for our customers. Those that don't challenge or disrupt themselves, will be disrupted," commented Tastyworks co-CEO and President Kristi Ross in an email to IBD.
More Top Brokerages For Trade Execution
Charles Schwab ranked No. 2 in trade execution, capturing a CEI score of 86.7.
According to Schwab, 92.6% of orders are filled at prices better than the National Best Bid And Offer (NBBO). The National Best Bid/Offer represents the best price in the public market for a security at a point in time during a given trading day.
Meanwhile, average savings per order is $13.84, with an average execution speed of 0.08 second.
Average execution speed measures a firm's ability to receive a quick and efficient execution. This statistic represents the difference between the order route time and the time of order execution.
Fidelity ranked No. 3 in Trade Execution Speed/Price with a CEI score of 86.
Fidelity says its price improvement can save investors $18.53 on average for a 1,000-share equity order, compared with the industry average of $4.25. This price improvement information is based on trades between Oct. 1, 2019 and Sept. 30, 2020.
Rounding out the top five brokers on trade execution are Interactive Brokers and TD Ameritrade with CEI scores of 78.3 and 78.
Price Improvement Key For Top Brokers
Interactive Brokers remains at the forefront of Trade Execution. Interactive Brokers' U.S. stock price executions were significantly better than the industry average during the first half of 2020. That's according to IHS Markit, a third-party provider of transaction analysis. For each 100 shares, Interactive Brokers had 62 cents of price improvement. The industry average showed 15 cents of price improvement.
IB SmartRouting searches for the best firm stock, option and combination prices available at the time of your order. And it seeks to immediately execute your order electronically.
As for TD Ameritrade, which was recently acquired by Schwab, 96.5% of orders received some price improvement with a net improvement of $2.62 per order for 100 shares. This data was compiled from July to September 2020. Execution quality statistics were provided by S3 Matching Technologies.
Price Improvement At Best Online Brokers For Trade Execution
The fact that Trade Execution Speed/Price was the most important attribute in the IBD Online Broker Survey indicates that investors are definitely paying attention to order execution.
To help verify the quality of trade execution, investors might need to do a bit of work. If you place a market order to buy a stock, you can expect to pay the ask price. For a market sell order, the opposite is true: You can expect to receive the bid price.
Price improvement occurs when you buy a stock at a lower price than the ask price, or when you sell a stock for a higher price than the bid price. Some brokers, like Fidelity, calculate the amount of price improvement for you. Otherwise, you'll just have to do it yourself.
Price improvement is a key way for cost-conscious investors to save money. Say an investor is purchasing 200 shares of XYZ stock with a bid-ask of 49.98-50. The investor should expect to pay 50 a share, but ends up paying 49.99 a share. While one penny per share doesn't sound like much, it adds up to $2 for 200 shares. Differences add up more quickly for active traders than for buy-and-hold investors.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen.
