What it means
An order receives price improvement when its execution price is more favorable than a stated reference price. For a buy, that means paying less; for a sell, it means receiving more. The reference and its timestamp matter: a common comparison uses the best displayed ask for a buy or best displayed bid for a sell when the order arrives. A fill at that quote has zero improvement by this measure.
Price improvement describes an actual fill, not a quoted opportunity or a guaranteed saving. A fill can improve on one reference and not another. For example, improvement relative to the ask does not necessarily mean a buy filled below the bid-ask midpoint.
How it is calculated
Use the reference quote recorded at a specified time, such as order arrival, and compare it with the execution price. For a buy, use the reference ask; for a sell, use the reference bid.
Buy improvement per share = reference ask − fill price
Sell improvement per share = fill price − reference bid
Total price improvement = improvement per share × shares filled
- Reference ask or bid: the relevant quoted price, in US$ per share, at the stated reference time.
- Fill price: the actual execution price, in US$ per share. For multiple fills, use their share-weighted average price if calculating one figure for the order.
- Shares filled: the number of shares executed, not necessarily the number originally requested.
- Improvement: US$ per share; multiplying by filled shares gives US$ for the filled quantity. A negative result means the fill was worse than that reference quote, not price improvement.
A report may instead express improvement in cents per share or as a percentage of the reference price. State which convention is used, especially when comparing reports.
Worked example
Suppose a hypothetical US stock has a displayed bid of US$49.98 and ask of US$50.02 when a 100-share buy order arrives. All 100 shares fill at US$50.01.
- Set the reference for this buy to the arrival ask: US$50.02 per share.
- Subtract the fill price: US$50.02 − US$50.01 = US$0.01 improvement per share.
- Multiply by shares filled: US$0.01 × 100 = US$1.00 total price improvement relative to that ask.
The bid-ask midpoint at arrival was US$50.00. This fill improved on the ask but remained US$0.01 above the midpoint. The US$1.00 figure is not net profit: it excludes commissions and any subsequent change in the stock price. If only 60 shares had filled at US$50.01, the measured total would have been US$0.60 for those 60 shares; the unfilled 40 shares would have no fill price to assess.
Why it matters before you trade
Price improvement can reduce the amount paid for a purchase or increase the proceeds of a sale compared with the stated quote. But a pre-trade estimate cannot establish whether improvement will occur. Quotes can change before execution, orders can fill at multiple prices, and some shares may not fill at all.
Before placing an order, the bid-ask spread, order size and available liquidity help frame potential execution costs. Afterward, compare recorded fills with a clearly timestamped reference and consider other costs. A favorable comparison to the ask or bid does not, by itself, show that the entire execution was low-cost.
How PreTrAIde uses it
PreTrAIde does not claim to calculate or deliver actual price improvement. Its pre-trade analysis estimates the bid-ask spread and market impact and assesses liquidity and execution conditions for each stock in a basket. It returns a suggested execution strategy alongside a GO, NO-GO or MODIFY verdict as decision support, not an order or recommendation. Users place trades with their own broker; only actual fills can establish realized price improvement.
Common mistakes
- Leaving out the reference time: a later quote can make the same fill look different.
- Confusing improvement on the ask with a midpoint fill: these are distinct comparisons.
- Counting unfilled shares: calculate realized improvement only for executed shares.
- Treating improvement as total savings or returns: commissions, other execution costs and later price moves are separate.
- Assuming a positive figure proves best execution: one quote comparison cannot assess every aspect of an execution.