Price improvement describes a simple idea: you get a better execution price than the one you expected when you sent an order. In forex trading that means buying at a rate lower than the quoted ask, or selling at a rate higher than the quoted bid, so the trade costs you less (or you receive more) than the displayed price at the moment you placed the order. For a retail forex trader this can show up as a few extra pips of benefit on a single trade or as a measurable reduction in trading cost over many fills.
How to think about price and spreads in FX
Before we walk through examples, it helps to remember how prices are shown in FX. Currency pairs are quoted with a bid (what you get when you sell) and an ask (what you pay when you buy). The difference between those two numbers is the spread. If the EUR/USD quote is 1.2000/1.2002 the spread is 0.0002, which is 2 pips using the common convention that a pip for most major pairs is the fourth decimal place.
When you send a market order you normally expect to cross the spread and pay the ask if buying, or receive the bid if selling. Price improvement happens when the actual execution is inside that spread — for example, buying at 1.2001 instead of 1.2002 — so you pay a slightly better price than the displayed quote.
How price improvement actually happens in FX
Price improvement in forex is produced by market structure and execution processes rather than being a mysterious bonus. There are several common mechanisms through which improvement can occur.
Liquidity aggregation and ECN/STP routing: Some brokers send orders into an electronic communication network (ECN) or to a straight‑through processing (STP) system that aggregates many liquidity providers. If a counterparty in that pool is willing to hit a price slightly better than the displayed quote, your order will be filled at that more favorable price.
Internalization by the broker or market maker: A broker that acts as counterparty to your trade may fill your order from its own inventory at a price inside the spread. That internalization can produce price improvement for you, but it can also create conflicts of interest depending on the broker’s business model.
Crossing and midpoint matches: Some venues or dark liquidity pools match buyers and sellers at the midpoint between bid and ask or at prices inside the spread. If your order is matched against such liquidity, you can receive midpoint or partial improvement relative to the public quote.
Execution algorithms: Smart order routers and execution algorithms can attempt to find execution opportunities that improve price. For example, a passive limit order may be placed inside the spread and wait for a matching counterparty, or a broker’s execution logic may seek internal liquidity first and then external venues to capture small improvements.
Fractional pricing and sub‑pip quoting: With very fine price increments (fractional pips, sometimes called pipettes), liquidity providers can post prices that are only a fraction of a pip inside the typical spread. Aggressive electronic liquidity can therefore deliver very small but real improvements.
Concrete examples you can picture
A simple numeric example helps. Imagine EUR/USD is quoted 1.2000/1.2002. You send a market buy order for 100,000 units. The expected cost at the ask would be 1.2002. If your broker routes the order into an ECN and a provider fills you at 1.2001, you received 1 pip of price improvement (0.0001). That 1 pip across 100,000 euros is meaningful: for a standard lot it reduces the notional cost by a measurable amount.
For a sell example, suppose GBP/USD is quoted 1.3500/1.3503. You send a market sell and get executed at 1.3501 instead of 1.3500 (one pip better for you). Again, the improvement is the difference between execution and the displayed NBBO (best bid/offered prices at that time).
Limit orders can produce larger improvement. If you post a passive buy limit at 1.2000 while the displayed bid/ask is 1.2001/1.2003 and someone sells to your resting order, you have effectively captured price improvement relative to the offer you would have otherwise paid.
How brokers and platforms report price improvement
Some brokers show price improvement on trade confirmations or in monthly execution quality reports. Retail traders can check their fills against the price quote at order time (many platforms record the quote snapshot) to see whether the execution was inside, at, or outside the displayed spread. Institutional reports often compute aggregate metrics like percentage of fills with improvement and average pips improved; retail reporting varies widely by provider.
Bear in mind that some brokers advertise “price improvement” as part of marketing. The important distinction is whether improvement is systematic, measurable, and independent of other fees or commercial arrangements, or whether it’s a byproduct of internal routing or payment arrangements.
Why price improvement matters to traders
Even small per‑trade improvements can compound over many trades, shrinking the effective cost of trading. For scalpers and high‑frequency strategies, fractional pip improvements can be material. For longer‑term traders the impact per trade is smaller but still reduces friction. Beyond cost, price improvement is also a signal about execution quality and how aggressively the broker or venue attempts to seek the best available price.
Risks and caveats
Price improvement is not a guarantee. In fast or thin markets you may instead experience slippage where fills occur at worse prices than quoted. In retail FX, some brokers operate as market makers and may internalize flow; internalization can produce price improvement but can also present conflicts of interest if the broker benefits from order flow in ways not aligned with your best price. Another widely discussed practice in FX is “last look,” which allows a liquidity provider a short window to accept, reject or reprice an incoming order. Last‑look policies can reduce visible price improvement because providers may decline fills that would have improved price for the taker; whether last look is used and how it is implemented varies by broker and jurisdiction and can materially affect execution outcomes. Finally, a reported improvement can be offset by spreads that are wider overall or by fees and commission structures, so always consider total trading cost rather than a single improvement metric.
Trading carries risk. Nothing here is personalized advice. Execution quality and practices vary by broker and country; if execution quality matters to you, review your broker’s trade confirmations and execution statements and ask questions about routing, liquidity providers, and any last‑look or internalization policies.
Key takeaways
- Price improvement in forex means getting an execution inside the displayed bid/ask, so you buy cheaper or sell for more than the quoted price.
- Improvement comes from ECN/STP aggregation, internalization, midpoint matching, or smart routing; it is a function of market structure and execution methods.
- Small improvements can add up, but they are not guaranteed and can be affected by slippage, last‑look practices, or broker business models.
- Always check execution reports and consider total trading cost; trading carries risk and this is not personalized advice.
References
- https://www.nyse.com/publicdocs/nyse/NYSE_Price_Improvement_202208.pdf
- https://www.investopedia.com/terms/p/priceimprovement.asp
- https://www.schwab.com/execution-quality/price-improvement
- https://www.fidelity.com/learning-center/tools-demos/trading-tools/price-improvement
- https://capitalmarkets.fidelity.com/app/proxy/content?literatureURL=/9916888.PDF
- https://diversification.com/term/price-improvement
- https://www.iex.io/article/performance-files-how-to-maximize-price-improvement-using-iex-exchanges-d-limit-order-type-index-html