What is Best Execution? What are the parameters or practices used to determine best execution?
It simply means getting the most value for your money.
If everyone is offering the same level of service, best execution will mean that you get the lowest price. If the levels of service differ – company A executes orders within 30 minutes whereas company B can take 2 hours – then you have to determine whether the additional service is worth a higher price.
In practice, it is probably quite complicated, and, I suspect, almost nobody does a thorough analysis to ensure that they’re getting best execution. They’re probably satisfied with what they’re getting for the price and they never think about it again.
On the exam, if you have to decide which broker offers best execution, they’ll make it clear if one service is worth a higher price than another. But I doubt that you’ll have to make that decision on the exam. The question(s) will likely be more high-level: knowing that you’re responsible for getting best execution, rather than calculating whether you are, in fact, getting it.
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@S2000magician Thanks. Though I understand from exam perspective this decision is not required. I am looking for processes followed by companies to determine Best Execution. Given that they have to make sure they are obtaining best execution.