Price Improvement

Price improvement occurs when an order executes at a price better than the National Best Bid and Offer at the moment it was routed: a buy that fills below the best national ask, or a sell that fills above the best national bid. The difference, measured in dollars or basis points, is value captured for the trader.

Most retail price improvement comes from wholesalers who internalize order flow. To compete for that flow (and justify PFOF arrangements), they fill a fraction of a cent or more inside the spread. Exchange price-improvement auctions for options work similarly, exposing an order to competing liquidity before it executes.

Brokers advertise aggregate price-improvement statistics from their Rule 605 reports, but the takeaway is to read them critically: improvement is measured against the (sometimes stale, round-lot) NBBO, so a few tenths of a cent of 'improvement' can still coexist with worse execution than a more aggressive venue would have provided.