Price Improvement: Getting Filled Inside the Spread
What price improvement means
Price improvement is when you buy below the best ask or sell above the best bid.
In cost terms, price improvement reduces your realized effective spread, sometimes dramatically.
Why it matters
Quoted spread is what you see. Real execution is what you pay. Price improvement is one of the few ways to make realized execution better than the top of book suggests.
The simplest tactic: place a limit inside the spread
Example: best bid 48c, best ask 52c.
• If you buy with a market order, you likely pay about 52c.
• If you place a buy limit at 50c, you may get filled at 50c if a seller accepts.
That 2c improvement directly lowers execution cost.
When price improvement is realistic
Price improvement is most likely when:
• The market is active and trades occur frequently
• The spread is not extremely wide
• Your size is small relative to market depth
• You can wait and you do not need instant execution
When price improvement is unlikely
It is harder when:
• The market is thin and there are long gaps between trades
• Spreads are widening and liquidity is pulling back
• Your order size is large and will move price
Practical methods that work
1) Work the order, do not chase
Place a limit inside the spread and wait. If you keep raising your price immediately, you end up paying the ask anyway.
2) Split size
Smaller child orders can get improved fills without revealing large urgency to the book.
3) Use stable windows
Avoid periods of spread widening. In unstable windows, price improvement is rare and the opportunity cost of waiting is higher.
4) Measure the results
Do not guess. Compute execution price using VWAP and compare to the midquote at submission time. If your effective spread improves, the method works for that market.
How price improvement changes effective spread
Using the same example (bid 48c, ask 52c, midquote 50c):
• Buy at 52c: effective spread = 2 × |52 - 50| = 4c
• Buy at 51c: effective spread = 2 × |51 - 50| = 2c
• Buy at 50c: effective spread = 0c
This is why micro improvements are worth real money at scale.
The hidden cost: missed fills
Price improvement has a tradeoff: you may not get filled. Missed fills can be an opportunity cost if the market moves away.
A clean approach is to define a time limit. If you do not fill within a window, reassess liquidity and decide whether you still want the trade at worse prices.
Takeaway
Price improvement is the most practical way to reduce execution cost in prediction markets. Use inside spread limits, keep size realistic, avoid unstable windows, and measure realized effective spread to confirm it is working.
Related
• Market Orders vs Limit Orders: Cost Tradeoffs