Price Improvement
Price improvement happens when your execution is better than the current best quote, for example buying below the ask or selling above the bid.
Definition
Price improvement means you executed at a better price than the best displayed quote at the moment of trading.
How it is measured
• For a buy, improvement is: best ask minus your execution price.
• For a sell, improvement is: your execution price minus best bid.
Why it matters
Price improvement reduces trading costs and usually lowers your effective spread. It can occur when you place a well priced limit order inside the spread, or when the market moves in your favor while you are waiting.
Common pitfalls
Assuming it will happen: You only get improvement if someone trades against your price. In thin markets, that may never occur.
Ignoring opportunity cost: Waiting for improvement can mean missing the move or not getting filled at all.