the best book under a magnifying glass

For several years, we have noticed that private investors often think that institutional traders will benefit from preferential conditions for placing orders in the stock market, while individual traders, on the other hand, will not have access to them.

In fact, European Financial Regulation (MiFID II), which aims to protect investors and ensure the proper functioning of financial markets, imposes particularly favorable conditions on individual investors, at different levels.

In this article, we explain what Euronext Best of Book is, which allows retail investors to take advantage of the best conditions when placing buy / sell orders on a stock exchange.

Explanation of the principle of “Best Performance” on the stock exchange

Let’s start with a reminder of the law

Following the adoption by the European Commission in 2014 of the MiFID II directive, which aims to ensure greater transparency in financial markets through harmonized standards at European level, financial intermediaries (ie brokers) are required to execute orders to buy / sell securities initiated by individual investors. adherence to the best execution policy.

The best execution policy stipulates that the stockbroker must make every effort to ensure the execution of orders at the best price for its retail clients.

For the best performance to be considered valid, the broker must consider two factors:

  • order fulfillment price (purchase / sale);
  • the cost of the transaction that the broker will pay for the execution.

Note: So think twice before asking your stock broker for professional investor status (for example, to get a bigger loan), as you will lose this right to guaranteed best performance.

Read also our article Free Trading: The Hidden Face of Stock Market Commissions

How does it work in practice?

If your stockbroker is regulated in Europe, he must guarantee you “the best performance”. However, in recent years, new players have emerged who seek to compete with major stock exchanges. These are MTF (“multilateral trading system”) and “dark pools”, which do not necessarily apply the rules of execution that are commonly found on historical stock exchanges.

Understand that MTFs and / or dark pools do not always fulfill orders at the best prices and rarely distinguish between retail orders and professional orders.

The best way to be sure of achieving “best performance” is to contact an exchange broker, who undertakes to comply with all orders of its clients on one of the major stock exchanges, which are governed by financial rules.

See also our 10 tips for choosing the best broker

Euronext and its Best of Book service

When your stockbroker submits your order to buy or sell shares to Euronext Paris through Best of Book, it is executed at the best price among all potential counterparties listed on the stock exchange, including certain counterparties reserved for individuals. Your order will be identified as an order initiated by a private investor and will have the best prices reserved for individuals in the Euronext book, which guarantees you:

  • access to the best prices available in Europe, thanks to liquidity providers who want to improve your performance;
  • the actual price of your order with negotiations in full competition under the Euronext Central Order Book (which indicates competition, indicates the number of contractors in the order book, which guarantees a competitive and unbiased market);
  • higher quality of execution, which allows you to get a price increase. Best of Book is the trading platform that surpasses EBBO (European Best Bid & Offer) the most, a benchmark that reflects the best possible price among all European trading platforms.

Thus, under these conditions, your orders may have a better final price for the purchase or sale of securities. In addition to being a retail investor, you will also have access to a number of additional promotions available.

According to QuantHouse, in 2021, thanks to Best of Book, retail investors’ orders benefited on average from a price increase of € 3.07 by placing their orders on Euronext rather than on an alternative platform. In addition, Best of Book allowed individual investors to get the best buy or sell price for 98.68% of processed orders. In total, private investors saved more than 106 million euros.

Also read our article on the Stock Market Commission: how not to be deceived

An example of executing stock market orders for an investor

In this illustrated example, we compare the execution of an order for 100 shares, which would be initiated by a retail investor, with the execution of an order for 100 shares, which would be initiated by a professional investor at the same time.

eurnext example of buying shares of a private investor against a professional investor

Source: Euronext

In the general ledger (available to all) we see that 50 shares are available for sale at a price of 250 euros and another 50 shares are available at a price of 300 euros.

Liquidity pocket, specifically reserved for retail investors, shows that there are 50 additional shares that are available at a price of 200 euros.

Read also our file How to invest in the stock market? Our step-by-step instructions

The case of a professional investor

Professional investors who want to buy 100 shares can buy 50 at a price of 250 euros (beginning of the book) and 50 at a price of 300 euros (liquidity level 2). Therefore, he will buy 100 shares at an average price of 275 euros.

The case of a retail investor

Individual investors who also want to buy 100 shares but have access to a reserve of special shares can buy 50 for 200 euros and 50 for 250 euros. Therefore, he will buy 100 shares at an average price of 225 euros.

Finally, don’t forget to always ask your broker where and how your stock market orders are executed because, in addition to broker commissions, there may be indirect transaction costs that amount to significant amounts over time.

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All our information is general in nature. They do not take into account your personal situation and are in no way personalized recommendations for transactions and cannot be likened to financial investment advisory services or any incentive to buy or sell instruments. The reader is solely responsible for the use of the information provided without the possibility of contacting the publisher The liability of the publisher can in no way be held liable in the event of error, omission or improper investment.