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Key Takeaways
- A buy improves price by filling below its offer benchmark; a sell improves by filling above its bid benchmark.
- Multiply per-share improvement by the executed quantity to calculate dollars.
- The worked 800-share buy receives $8 of improvement against the offer.
- Its $10.03 fill is also $0.01 above the $10.02 midpoint.
- Use the actual premium and quantity to connect the execution with the position’s payoff.
What is price improvement?
Price improvement is an execution at a price better for the customer than the defined quote benchmark, commonly the quote when the order is received. A buy improves on the offer by executing below it. A sell improves on the bid by executing above it. Multiply the per-share difference by the executed quantity to express the result in dollars.
Name the quote and the moment you measure against, since each execution-quality measure defines its own.
Formula
Buy improvement/share = benchmark offer − fill price; sell improvement/share = fill price − benchmark bid; dollar improvement = improvement/share × executed quantity- The benchmark must be defined for the report or analysis, commonly using the relevant quote when the order is received.
- A positive value is favorable to the customer; zero means a fill at the benchmark opposite-side quote.
- Fees and rebates come off the dollar figure, and only executed quantity counts: an unfilled remainder earns no improvement.
Price improvement example: an 800-share buy
A broker receives a marketable order to buy 800 shares when the relevant quote is $10.00 bid and $10.04 offer. The order executes in full at $10.03.
- Buy benchmark: $10.04 offer at order receipt
- Price improvement per share: $10.04 − $10.03 = $0.01
- Gross dollar improvement: $0.01 × 800 = $8.00
- Quote midpoint: ($10.00 + $10.04) / 2 = $10.02
- Fill versus midpoint: $10.03 is $0.01 above midpoint for the buyer
The 800 shares cost $8,024, which is $8 below the $8,032 offer benchmark. The same fill is $8 above the midpoint benchmark of $8,016: the buyer beat the offer and paid up against the midpoint.
Price improvement on stock and option orders
For shares, multiply by executed share quantity. For standard 100-share option contracts, multiply the premium difference by 100 and by contract count. Two cents across 50 standard contracts equals $100.
For a multi-leg position, reconcile the complete package’s premium and quantities. Use each contract’s actual multiplier when the contract specifications differ from the standard. Enter the actual fill premium in the options profit calculator to see its effect on breakeven and expiration payoff.
Price improvement vs limit savings
A buy limit of $50.10 fills at $50.07 against a $50.08 offer. That produces one cent of quote improvement and three cents of savings against the limit.
Quote improvement measures the fill against the market; limit savings measures it against the price you were willing to pay. Commissions and fees complete the trade’s cash accounting.
Limitations of price improvement
- Quote every improvement figure with its benchmark. In the example, the same fill is $8 better than the offer and $8 worse than the midpoint.
- Check the quote at execution as well as at receipt. The figure compares the fill with the quote at one moment, and when quotes move between order receipt and execution, the measured improvement differs from the market available at the fill.
- Net out fees and rebates and count only executed shares: a partial fill earns improvement on the shares that traded.
- Price is one part of execution quality. Speed, fill likelihood and size also count, so judge a broker on fill rates and speed across many orders as well as on per-fill improvement.
Bottom line
Price improvement measures how much better a fill is than the quote benchmark, in cents per share and dollars per order. Name the benchmark every time, multiply by the executed quantity and any contract multiplier, and judge the result alongside fees, fill rates and speed.
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Sources and Further Reading
How entries are sourced, calculated and updated: editorial methodology.