What Is a Worked Example of Execution Price?

Direct answer

An execution price is the actual price at which an order is filled, used to compute cash flows and any resulting profit or loss. A worked example means you pick a simple market scenario, state every assumption (spread, commission/fees, and whether slippage occurs), and then calculate what execution price would be and how it differs from the price you expected at order placement.

Mechanism or definition

Start with two separate ideas:

1. Expected price (quote/trigger reference): the price you see or the reference price used when you submit an order.

2. Execution price (fill price): the price the trade actually executes at. It may equal the expected price, or it may differ because trading happens with changing quotes, latency, partial fills, and provider-specific cost components.

A worked example is mostly about the calculation path. The mechanics are not specific to any one platform: you choose inputs, you compute the execution price used in the fill, and then you compute a cash-flow measure (for example, the notional value and the effect of costs). The key is to state whether your execution price includes or excludes costs such as commission and spread effects.

Evidence or example (numerical scenario with explicit assumptions)

Assumptions (state these up front)

To keep the example verifiable, assume:

• You buy a forex instrument (a long position).
• You intend to execute at a reference quote of 1.10000.
• The market spread at the moment you place the order is 0.00020, meaning:
  • Bid = 1.09990
  • Ask = 1.10010
• You want a buy fill; therefore, the trade can execute near the ask side.
• Commission/fees are modeled as 0.00 in this first pass (so execution price differences are driven only by spread/slippage).
• There is no slippage beyond spread in this scenario (execution price equals the effective price implied by the ask at execution).

Step-by-step calculation

1. Expected reference: You see a price of 1.10000.
2. Convert to the side used for execution: For a buy, you execute against the ask.
3. Compute bid/ask from the spread:
   • If spread is 0.00020 and the mid/reference is 1.10000, then:
   • Ask = 1.10000 + 0.00010 = 1.10010
   • Bid = 1.10000 − 0.00010 = 1.09990
4. Execution price: With the no-slippage assumption, the fill occurs at execution price = 1.10010.

What changed relative to what you expected?

• Expected reference (mid/quote): 1.10000
• Execution price (buy fill): 1.10010
• Difference: 0.00010 (one half-spread)

Second mini-scenario: add slippage to show why execution price can differ further

Keep everything the same except add adverse slippage of +0.00005 versus the ask you expected.

• The ask you expected: 1.10010
• Slippage pushes the fill higher for a buy by 0.00005
• Execution price becomes 1.10015

This demonstrates the main point: a worked example needs assumptions about spread and slippage. If you do not specify them, “execution price” cannot be reproduced and independently verified.

Limitations and risks (material failure modes)

Even a correct calculation can be misleading if inputs are wrong or incomplete. Common limitations include:

1. Spread and slippage are variable: The spread model you assume (e.g., mid plus half-spread) may not match the provider’s displayed prices at the actual execution moment.

2. Partial fills: Large orders can fill in multiple parts at different prices. In that case, there may be multiple execution prices, and you may need an average fill price to analyze results.

3. Cost components may not be reflected in “price”: Some fees and commissions are separate from the execution price. If you mix them into one number, you may misinterpret what execution price alone means.

4. Quote freshness and timing: If the reference quote you used was stale, your “expected price” comparison will be wrong even if the execution price is accurate.

Verification or next question

To verify any execution-price calculation you see (or build yourself), do two checks:

• Check the fill details: use the executed price values from the trade record, not the pre-trade quote.
• Reconstruct the assumptions: confirm what you assumed for bid/ask, spread, slippage, and whether fees are treated separately.