The Price Improvement Strategy is an execution-based trading approach that focuses on achieving a better fill price than the quoted market price. Rather than simply accepting the spread or slippage that comes with market orders, this strategy uses smart order types, passive liquidity, and real-time order flow cues to improve entry and exit prices, thereby maximising returns and reducing transaction costs over time.

It’s an essential tactic for scalpers, high-frequency traders, and institutional-style retail traders who aim to control execution efficiency—especially in volatile or illiquid market environments.

What Is Price Improvement?

Price improvement occurs when a trade is executed at a better price than the one requested. For example:

• You place a buy order at 1.1000 but get filled at 1.0998
• You place a sell order at 1.3000 and get filled at 1.3002

This can happen:

• Through internalised order matching (brokers matching orders at better prices)
• Via passive limit orders placed near the spread
• When trading in dark liquidity pools or on ECN venues with multiple quote providers

Core Objective of the Strategy

To enter and exit positions with superior pricing, reducing spread impact, slippage, and improving reward-to-risk ratios—especially for strategies that trade frequently or in large sizes.

Key Tools for Price Improvement

• Limit Orders: Crucial for passive execution
• Pegged Orders: Automatically track the best bid or ask
• Iceberg Orders: Break large orders into smaller hidden chunks
• Smart Order Routing (SOR): Finds the best execution venue across multiple liquidity pools
• VWAP or Midpoint Pricing Engines: Anchors execution to the fairest current value

How to Execute the Price Improvement Strategy

Step 1: Identify the Trade Setup

Use your core strategy (Ichimoku, S&R, price action, etc.) to determine:

• Directional bias
• Entry level
• Context (range, breakout, trend continuation)

Step 2: Choose Passive Over Aggressive Entry

Instead of executing a market order:

• Place a limit order at or just inside the bid/ask spread
• For example:
  • Best ask = 1.2010
  • Place buy order at 1.2009 or 1.2008

This gives you a chance to get filled at a better price, or be first in queue if price retraces.

Step 3: Monitor Order Book & Time of Day

• Place price improvement orders during high liquidity sessions (London, NY)
• Avoid entering aggressively during news or wide spreads
• Watch for order book signals—stacked bids/asks, refreshing liquidity, or iceberg walls

Step 4: Use Smart Order Types

If supported by your broker:

• Midpoint Pegged Order: Buys at mid-price between bid/ask
• Buy/Sell Peg to Best Bid/Ask: Matches best quote passively
• FOK or IOC Orders: Control timing and size without accepting unfavourable fills

Step 5: Manage Execution Time & Expiry

• Use Good for X seconds/minutes limit order expiry
• Cancel and re-enter if not filled near critical timing levels
• Time exits using same method—don’t accept poor pricing

Example: USD/JPY Limit Buy with Price Improvement

• Strategy shows long bias at 150.20
• Spread = 0.4 pips (bid 150.18, ask 150.22)
• Place limit buy at 150.19 instead of market at 150.22
• Filled after brief dip
• Saved 3 pips of slippage, increasing potential R:R by 15%

Advanced Tactics

• Layered Entry Orders: Break orders across multiple price levels
• VWAP Anchored Orders: Enter near average fair value
• Counterfade at Liquidity Sweeps: Place limit entries right after stop-hunt candles
• Pre-News Order Placement: Get fills during short volatility spikes when spreads widen then snap back

When to Use This Strategy

• High-frequency scalping or day trading
• Entering large positions without impact
• Trading during range-bound or low volatility periods
• Executing trades near support/resistance zones where price reacts sharply

Advantages of the Price Improvement Strategy

• Reduces transaction costs and increases net profitability
• Avoids slippage during volatile periods
• Improves R:R ratios by optimising entry price
• Enhances trade precision, especially in scalping models
• Builds discipline, avoiding impulsive market orders

Risks and Limitations

• May miss entries in fast-moving markets
• Requires discipline and patience
• Not supported by all brokers—needs ECN, DMA, or smart-routing capability
• Can be front-run by faster traders or algorithms
• Less effective in high-slippage or illiquid pairs

Conclusion

The Price Improvement Strategy is a powerful yet often overlooked edge in trading—especially for those who execute frequently or trade size. By learning to avoid market orders and instead using smart order types, passive executions, and order flow cues, you can systematically enhance your entries and exits, compound profitability, and reduce risk over time.

To learn how to apply price improvement logic across all your strategies and master institutional-grade execution, enrol in our Trading Courses and trade with greater control, accuracy, and consistency.