For a trader, the difference between the quoted market and the price actually achieved can be small on a single order but significant across thousands of transactions. Measuring that difference sounds straightforward until liquidity is spread across many venues, order types and execution methods. Modern markets offer more choice than ever, but that choice makes the definition of “good execution” increasingly dependent on context. BIS - FX trade execution landscape, 2025
This is visible across equities and foreign exchange. The BIS describes the FX market as decentralised and highly fragmented, with customers able to access numerous multi-dealer venues, single-dealer platforms and non-bank liquidity providers. In equities, regulators have spent years examining how trading across exchanges and off-exchange venues affects transparency, price discovery and best execution. The common challenge is that a single headline price cannot capture every dimension of an order’s outcome. BIS - Through stormy seas: liquidity fragility
Price is only one part of execution quality
The most obvious measure is whether an order received a competitive price. But traders also care about the amount filled, speed, market impact, information leakage, rejection rates and the opportunity cost of waiting. A large institutional order may accept a slower execution to avoid moving the market, while a small retail order may prioritise immediate completion. BIS - FX trade execution landscape, 2025
These trade-offs make execution analysis inherently multi-dimensional. A venue that appears attractive on quoted spreads may perform differently once fill probability or adverse selection is considered. The relevant benchmark can also change by instrument, order size, volatility regime and time of day.
Fragmentation creates more choice and more measurement problems
Competition among venues can improve pricing and encourage innovation, but it disperses liquidity. ESMA’s analysis of European equity market structure has highlighted both the benefits of venue competition and the concern that a fragmented trading landscape can affect liquidity. Traders may need to search across multiple pools to locate the best combination of price and size. BIS - Through stormy seas: liquidity fragility
The problem is that displayed liquidity can be duplicated. The same participant may quote on several venues and cancel the remaining orders once one trade executes. This can make the market appear deeper than it is. In other cases, liquidity is hidden and only becomes visible when an order interacts with it. Measuring “available liquidity” therefore requires more than adding up what can be seen on screens.
The liquidity mirage remains a useful concept
BIS work on FX execution algorithms has described how fragmented markets can create a liquidity mirage: apparent depth may disappear when traders attempt to access it. Yet more recent BIS analysis of market turbulence in April 2025 found that FX liquidity remained resilient and that non-visible internalised trading helped absorb flows. The lesson is not that hidden or fragmented liquidity is necessarily fragile, but that its behaviour can vary sharply with market structure and conditions. SEC - Rule 605 order execution quality, 2024
Execution models need to account for this uncertainty. Historical fill rates in calm markets may be a weak guide during stress. Liquidity can migrate between venues, dealers can change quoting behaviour and algorithms can alter routing decisions in milliseconds.
Benchmark design is becoming more important
Common measures such as implementation shortfall, arrival price, volume-weighted average price and effective spread can each answer different questions. None is universally superior. A benchmark that rewards trading close to the market’s average price may not reflect the urgency or information content of the original order. ESMA - Evolution of EEA share market structure since MiFID II
This makes pre-trade intent important. Traders should know what they are trying to optimise before assessing the result. If urgency is high, speed and completion may outweigh small price differences. If market impact is the main concern, a slower strategy can be appropriate. Execution quality should therefore be judged against the objective of the order, not only against a generic statistic.
Regulators want better disclosure
The US Securities and Exchange Commission modernised Rule 605 disclosures in 2024 to provide more useful information about order execution quality and extend reporting to large broker-dealers. The policy rationale is that better data can help investors compare providers and strengthen competition on execution rather than only on visible commissions or platform features. BIS - FX execution algorithms and market functioning
This reflects a broader market-structure trend. As explicit trading fees have fallen in many markets, attention has shifted toward implicit costs. Price improvement, spread capture, routing incentives and execution speed can all matter even when headline commissions are zero or very low.
Algorithms shift the problem from access to selection
Electronic trading and liquidity aggregation make it possible to connect to many venues at once. That reduces the mechanical problem of access but raises a new one: deciding where and when to trade. Smart order routers and execution algorithms can split orders, react to changing prices and choose among liquidity providers far faster than a human trader. BIS - Non-visible trading and FX liquidity conditions in April 2025
The quality of the routing logic therefore becomes part of execution quality. Two brokers with access to similar venues can produce different outcomes because of how their algorithms rank liquidity, respond to rejections, control information leakage or manage market impact. The technology is not merely a delivery mechanism; it is part of the trading decision.
Average liquidity can hide tail risk
BIS research using long-run high-frequency data finds that average bid-ask spreads have improved across several major asset classes, while episodes of substantial illiquidity have become more prominent in some markets. The research links algorithmic trading and fragmentation with lower average spreads but also with measures of reduced resilience in equities.
This distinction matters because execution costs are not evenly distributed. A strategy can perform well during normal periods yet suffer disproportionately when liquidity deteriorates. Traders and risk managers therefore need to evaluate the distribution of execution outcomes, not simply the average.
The next advantage may be better measurement
As venues, algorithms and execution methods proliferate, the ability to measure trading outcomes consistently becomes a competitive capability. Transaction-cost analysis can help identify which venues perform well for particular order types, where routing rules create unnecessary cost and how performance changes during volatility.
But measurement should remain sceptical of false precision. Markets are adaptive systems and every benchmark has limitations. The goal is not to identify a perfect execution after the fact; it is to build a repeatable process that improves decisions before, during and after trading. In fragmented markets, the firms that understand their own execution data may have an advantage over those that simply assume access to more liquidity automatically means better outcomes.
Key questions
What is execution quality?
It is the overall outcome of a trade relative to its objective, including price, speed, fill rate, market impact and other implicit costs.
Why does fragmentation make measurement harder?
Liquidity is distributed across many venues and may be duplicated, hidden or available under different conditions, so no single displayed market captures the full opportunity set.
Does more electronic trading always improve execution?
No. Technology can improve access and speed, but outcomes still depend on routing logic, liquidity conditions, order objectives and market structure.
References
BIS - FX trade execution landscape, 2025
BIS - Through stormy seas: liquidity fragility
SEC - Rule 605 order execution quality, 2024
ESMA - Evolution of EEA share market structure since MiFID II
BIS - FX execution algorithms and market functioning
BIS - Non-visible trading and FX liquidity conditions in April 2025