A quote is a price attached to a size, which is why the fill is a different number. Because price quotes are only for a specific number of shares, investors do not always receive the price they saw on their screen or the price their broker quoted over the phone, and the bid and the ask are each a price for a specified number of shares. Sell 500 shares against a $20 quote, execute at $20.05, and the difference is $25 in your pocket; the condition that moves that difference the other way is time in transit, because by the time your order reaches the market, the price of the stock could be slightly, or very, different.

A quote carries a size, and the size runs out

The difference between the bid price and the ask price is the spread, and a marketable order crosses it. A buy takes the ask; a sell hits the bid. Neither number is a commitment to an unlimited quantity.

Once the displayed size is exhausted, the rest of the order trades at the next available price. That is the SEC's own illustration of the effect: a market order to buy 1,000 shares when the best offer is $3.00 can have 500 shares execute at $3.00 and 500 execute at a higher price. The result is a partial fill or a multi-price execution, not a mispriced screen.

The order travels before it executes

Between your click and the print there is a route. Your broker decides which market to send the order to for execution, and the price moves while that happens.

The rulebook does not fix the gap by fixing the clock. No SEC regulations require a trade to be executed within a set period of time, though firms that advertise their speed of execution must not exaggerate or fail to tell investors about the possibility of significant delays. The screen you are watching is also not the same thing as the price you will pay.

Best execution is a duty about process

Your broker has a duty to seek the best execution that is reasonably available for its customers' orders, which means evaluating orders in the aggregate and periodically assessing which competing markets, market makers or ECNs offer the most favorable terms of execution.

Read that as a standard for how routing decisions get made and reviewed, not as a promise about any single fill. A firm can satisfy it and still hand you a print away from the quote you saw, because the quote you saw was one venue's price for one size at one moment.

Price improvement moves the difference the other way

The gap does not always run against you. The opportunity for price improvement is an important factor a broker should weigh: selling 500 shares when the quote is $20 and executing at $20.05 puts $25 more in your pocket. That is 500 shares times $0.05.

Payment for order flow runs alongside it. Some regional exchanges or third market makers pay a broker for routing an order, perhaps a penny or more per share, and an investor can ask about the nature and source of any payment for order flow. At a penny a share, the same 500-share order is worth $5 to the firm that routed it.

Example: 500 shares quoted at $20.00

An example, and a mechanism rather than a strategy, built on the SEC's figures. You are selling 500 shares with the bid at $20.00.

Filled at the quote, the proceeds are 500 times $20.00, or $10,000. Filled with price improvement at $20.05, the proceeds are $10,025, the $25 the SEC describes. Filled at $19.95 after the bid moved while the order was in transit, the proceeds are $9,975, or $25 short of the screen.

The distance between the best and worst of those three records is $50 on a $10,000 sale, which is half of one percent of the trade. None of the three fills breaks a rule. All three are the same order meeting a different market, and the same effect turns a gross result into a net one.

What your broker has to tell you about routing

The record exists and you can ask for it. Brokers must respond to requests from customers interested in learning where their individual orders were routed for execution during the previous six months, and market centers must disclose monthly information about execution quality on a stock-by-stock basis.

Two questions make that record useful. Where did this order go, and what did the receiving venue report for orders of that size in that stock? The answer explains a fill; it does not change one, and neither does the order type you chose, which only decides which half of the trade-off you accepted.

Source references

Primary sources used for this guide. Follow the links for the original scope, definitions and conditions.