3 Nov 2014

A trading service that is restricted to execution of trades only, without the client receiving any advice about the merits or risks of the investments or their suitability. Execution only services are predominantly Internet-based or telephone-based. Since no advice is imparted, execution only services are most suitable for experienced investors who are conversant with the risks and rewards of various types of investments. As they only offer trade execution, improvements in trading platform technology have led to the cost of such services plummeting. Execution only services thus offer a very economical trading platform for the retail investor, with many of them offering stock trades for single-digit dollar commissions.

In order to operate more efficiently, execution only services use nominee accounts. This means that the client’s investments are registered in the name of the brokerage that operates the execution only service, although the client remains the beneficial owner. While the brokerage handles all the documentation related to the buying and selling of securities, and collects dividends and deposits them in the client’s account, it will forward information that needs shareholder action to the client.

Although they do not provide advice or recommendations, many execution only services make investment research from their parent companies available to their clients. So while these clients ultimately have to make the investment decision on their own, they receive a wealth of information to assist them in the decision-making process.

The cost of execution only services is a fraction of what it costs for putting through a trade at a full-service brokerage. It is therefore primarily suitable for experienced traders, day traders and technical traders who may make numerous trades on any given day. However, traders should be aware of the risks of over-trading, which can lead to potentially steep losses that more than offset the low cost of trading through an execution only service.

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