Warrior Trading Blog

Fill Price Definition: Day Trading Terminology

Fill Price

Fill price is a term referring to the act of fulfilling an order for a particular financial instrument. As a trading term, it is used to describe the action of transacting financial instruments like stocks, bonds and others. It is important to understand that when an order is complete, savvy traders refer to this process as filled.

There are several parameters that must be met in order to ensure that an order is filled.

These parameters may vary and this is as a result of the type of order. For example, traders who initiate market orders do so by filling the order with the best available price as fast possible while traders placing a good til’ cancelled order opt not to fill the order until a particular condition is met which is the price set by the trader.

How It Works

Here is an example to better understand how a fill works. Let’s assume we have Company A where its current stock price in the market is $25. As a result of an expected decline in the share price, a trader may decide to place a market order of 50 shares. At the current market price, the order will be worth $1,250 and will be immediately filled upon submitting the order

In this case, the fill price is the amount at which the transaction is completed, which will be the best available offer at that time and in this is example $25.

In order for an order to be filled, a broker may use one of the following ways.

Order To Market Maker

This is accomplished by a broker where he or she gets to direct a trade to the market maker who is in charge of your stock. Your buy or sell order will be completed in a timely manner and in some cases, brokers may earn additional money through the payment of order flow. One such case is where brokers send your order to the cheapest market maker. This is common for OTC markets like NASDAQ.

Order to Third Market Maker

Brokers may opt to use a third marker maker. For this to happen the broker may receive an incentive meant to entice him or her to direct orders to the party or the broker is not a member firm. This scenario is common for financial instruments trading at the NYSE.

Electronic Communications Network

This system has the ability of matching buy and sell orders automatically without the intervention of a broker. To use the system, one has to place limit orders since an ECN is designed and developed with algorithms that have the ability of matching prices for different financial instruments quickly.

Through Internalization

This is where a broker fills an order using the stock inventory available or owned by the brokerage firm. As a result, brokers are able to execute the orders quickly finally earning additional money on the spread.

Final Thoughts

What you need to know is that brokers are required to offer traders and investors with the best options for filling orders. The reason for this is because the selected choice may affect your bottom line. As a result, the trader or investor may end up taking a loss. To prevent this, it is wise to select a reputable broker with a proven track record.