Glossary · Execution
Agency Execution
Also: agency trading, agency model
Published
Agency Execution — Agency execution is a trading model in which the provider executes an order on the client's behalf, routing it to venues or working it with an algorithm, passing through the prices achieved and charging a commission, while the client bears the market risk during execution. It contrasts with principal execution, where the provider is the counterparty.
How It Works
The client gives the provider an order and instructions: a benchmark to track, a window, venues to include or exclude, and limits. The provider's execution systems work the order, and the client receives the fills at the prices achieved plus a disclosed commission. The provider has no position and no incentive tied to the price; its interest is in the quality of execution against the agreed benchmark.
When Agency Fits
Agency execution suits orders that can be worked over time without urgency, where the client wants transparency into every fill and venue, and where the client is comfortable holding market risk during the window. It also suits participants that want to benchmark a provider's algorithms against their own.
Agency or Principal
Principal execution transfers the risk of a block to the provider at a known price. Agency execution keeps the risk with the client and pays for skill rather than risk capacity. Many institutional desks use both from one relationship, choosing per order.