A question to the Freetrade team. Who do you execute your trades with at the end of day and do you widen your bid/offer you receive when it’s passed on to users?
We execute our trades with the Retail Service Provider (RSP) network.
At the moment, when your Freetrade order successfully completes the venue ID on your contract note will read: London Stock Exchange. This ID could mean two things:
- Your trade was placed on the LSE order book itself and matched with a counterparty. This is known as an order-driven market as all the bids and asks are displayed, which is great for transparency. This is the norm for trades above a certain value between certain parties (usually institutions), but there is no guarantee that someone is willing to take the other side of your trade and successful execution is much less likely for small orders (i.e. from individual investors).
- Your trade was placed with an LSE market maker, aka a Retail Service Provider or RSP. This is known as a quote-driven market as the market maker will provide a firm quote to take the other side of your trade. This is the norm for smaller ‘retail size’ trades.
Most of our customer orders are at a suitable size for option 2. That means we take your order for e.g. 10 shares of Barclays and ask the network of LSE market makers to provide a quote. We then choose the best price that can be executed quickly.
Sometimes trades can get rejected because the price quotes we get back from the market makers aren’t good enough based on the observable prices against big orders on the LSE order book.
This is part of our commitment to best execution, a regulatory requirement for execution-only brokers.
quote from this blog post
No we don’t