Price Improvement
The Formal Definition
The execution of an order at a price more favorable to the investor than the prevailing National Best Bid and Offer (NBBO) at the time of order routing.
Price Improvement = |Executed Price - Prevailing NBBO Price| × Share Volume
Cole Barrett's Reality Check
The Unvarnished Bottom Line"Price improvement is how brokers prove they aren't robbing you on execution. If the public Ask is $50.00 and your broker fills your buy order at $49.98, that 2-cent difference went into your pocket instead of the market maker's pocket."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: 1,000 shares of liquid US equity (NBBO: $100.00 Bid / $100.04 Ask)
| Execution Metric | SmartRouted DMA Execution (IBKR) | PFOF Zero-Commission App |
|---|---|---|
| Fee / Rate | $1.00 fixed fee | $0.00 'free' trade |
| Spread / Buffer | Filled inside the spread at $100.01 | Filled at flat Ask ($100.04) |
| Execution / Status | $0.03/share price improvement | Zero sub-penny improvement |
| Total Cost / Result | Saved $29.00 net vs. headline offer | Overpaid $29.00 on entry |
How Brokers Weaponize This Term
Brokers cite aggregated 'millions in price improvement' in PR reports, but fail to mention that 90% of that improvement goes to small, illiquid odd lots, while larger market orders are filled at the worst Ask.
Broker Evaluation Matrix
Cole Approves
Fidelity / Interactive Brokers: Audited SEC Rule 606 reports verifying consistent sub-penny price improvement on lit and dark venues.
Read Audit →Cole Flags / Avoids
Gamified Retail Brokers: Low rate of price improvement on standard market orders.
View Trap Details →Frequently Asked Questions
How does price improvement occur?
It occurs when orders interact with hidden midpoint limit orders on lit exchanges or when market-making wholesalers step inside the NBBO.
Is price improvement guaranteed on market orders?
No. The broker is only legally obligated to meet the NBBO, making price improvement an execution quality bonus rather than a statutory guarantee.