Price Improvement
Execution of a trade at a better price than the quoted best bid or offer, resulting in a lower cost for a buyer or higher proceeds for a seller.
What is Price Improvement?
Price improvement occurs when a broker executes a customer's order at a price better than the National Best Bid and Offer (NBBO) quoted in the market. For a buyer, price improvement means purchasing shares below the best ask; for a seller, it means selling above the best bid. Price improvement is a key component of execution quality and is frequently cited by brokers that internalize order flow — routing retail orders to wholesalers who compete to offer the best price rather than sending orders directly to exchanges. Regulation NMS requires that brokers seek best execution, and the SEC monitors whether payment-for-order-flow arrangements deliver meaningful price improvement to retail investors.
Example
A retail investor places a market order to buy 100 shares of a stock with the NBBO showing a best ask of $50.00. The broker routes the order to a wholesaler who fills it at $49.98 — two cents below the ask. The investor receives $2.00 in total price improvement ($0.02 × 100 shares) compared to the posted quote.