# Execution strategy Execution strategy is a plan for placing and managing a trade, including order type, timing, size, and price conditions, to balance execution cost, speed, and the risk of not getting filled. ## What it means An investor can decide *what* to trade without yet deciding *how* to place the order. The second decision is the execution strategy: the order type, quantity, timing, price conditions, and any plan for handling a partial fill. For a basket, different stocks may need different conditions because their liquidity and volatility differ. For example, a market order prioritizes getting an available fill but does not set a maximum purchase price or minimum sale price. A limit order sets that boundary, but may fill only partly or not at all. Splitting an order into smaller pieces can change its participation in trading volume, while taking longer introduces exposure to price changes. No approach eliminates every trade-off. ## How it is calculated An execution strategy is a plan, not a single number with a universal formula. One way to compare hypothetical plans is to estimate their execution cost against a specified reference price: `Estimated execution cost (US$) = Q × (P_fill − P_ref) + fees` for a buy. - `Q` is the number of shares filled. - `P_fill` is the average fill price, in US$ per share. - `P_ref` is the reference price, in US$ per share, recorded when the plan is assessed. It might be the arrival price or a contemporaneous midpoint; the choice must be stated. - `fees` are applicable trading fees, in US$. The price difference can reflect spread, market impact, and price movement while the order is being filled. A negative result is possible if the average fill is below the reference price. This calculation measures filled shares only; it does not capture the opportunity cost of shares that never fill. Before trading, `P_fill` is unknown, so any cost calculated with an assumed fill price is an estimate, not an actual result. ## Worked example Suppose, hypothetically, an investor considers buying 1,000 shares. The arrival price is US$20.00 per share, making the reference value 1,000 × US$20.00 = US$20,000. 1. For an immediately executable approach, assume all 1,000 shares fill at an average of US$20.04 and fees are US$0. Estimated cost versus arrival is `1,000 × (US$20.04 − US$20.00) = US$40`, or US$0.04 per share. 2. For a price-limited approach, assume 600 shares fill at US$20.00 and 400 remain unfilled. Cost on the filled shares is `600 × (US$20.00 − US$20.00) = US$0`. The unfilled 400 shares cannot be treated as a completed 1,000-share trade. 3. The two results answer different questions. The first completes the hypothetical order at a measured cost; the second holds its price boundary but leaves the intended quantity incomplete. Later prices could change the cost of completing it. These assumed fills illustrate the calculation, not what either order type will achieve. ## Why it matters before you trade A pre-trade check makes execution conditions explicit while there is still time to examine the trade-offs. Size relative to daily volume, estimated bid-ask spread, volatility, and market impact all affect whether a proposed schedule or price boundary is practical. Market hours and news can also matter: liquidity and prices are not fixed throughout the day. A cost estimate should be read alongside fill risk. A plan showing a low cost *if filled* may be less useful if the specified price prevents completion. Conversely, a plan emphasizing speed can accept more uncertainty about the final price. The relevant balance depends on the investor’s stated execution conditions, not on a universally best order type. ## How PreTrAIde uses it PreTrAIde is an AI platform for **pre-trade analysis** of stock baskets. A user enters each stock’s side, quantity, and execution conditions. Before an order is placed, PreTrAIde returns a GO, NO-GO, or MODIFY verdict for the basket and each line, together with a suggested execution strategy, risk assessment, model-estimated success probability, and plain-language reasoning. Its quantitative layer estimates spread, participation in daily volume, market impact, and daily volatility; AI agents reason using quantitative scores, news, and analyst ratings. The suggested strategy is decision support, not an order or investment recommendation. PreTrAIde does not receive, transmit, or execute orders; users place trades themselves through their own broker. Its success probability is a model estimate, not a guarantee or a forecast of returns. ## Common mistakes - **Confusing a limit with a guaranteed fill.** A price boundary does not ensure execution, even when a quote briefly reaches that price. - **Treating estimated cost as a quoted broker charge.** Spread and market impact are estimates; fees are a separate component. - **Ignoring unfilled shares.** A low cost on a partial fill does not describe the cost of completing the intended order. - **Using one plan for every stock in a basket.** Equal order sizes can represent very different fractions of each stock’s daily volume. --- Source: https://pretraide.com/glossary/execution-strategy