Another question you may ask your broker
— or prospective broker — is how often the firm's
clients benefit from price improvement, which enables you to buy
stock for less and sell it for more than the current publicly
quoted price. If you trade often, price improvement can add up
to significant savings.
You might sometimes benefit from price improvement
on a market order coincidentally if the market direction changes
between the time you give an order and when it is executed. But
price improvement on a market order may also occur if a broker
actively seeks the best price available, whether by routing the
trade to an exchange other than the one where a stock is listed,
to a market maker, or through an ECN.
Seeking price improvement may sometimes conflict
with the goal of speedy execution. There's also the risk
that prices could move in the opposite direction, costing you
rather than saving you money. Choosing to wait may be the individual
broker's judgment call, or it may reflect firm policy.
To
the limit
You may realize price improvement on a limit order if it is filled at a price close to but slightly better than your limit. For example, suppose you give a limit order to buy a stock at $80 and the trade is executed at $79.85. On 500 shares, the savings are $75. Amounts like that can add up, especially if you're an active trader.
