Trade Or Fade Rule

DEFINITION of 'Trade Or Fade Rule'

An options exchange rule that requires the market maker to either match a better bid found on another market, or to trade with the market maker offering the better bid. The trade or fade rule was adopted in order to prevent trade throughs, which are trades processed at non-optimal prices, as a higher bid is available.

BREAKING DOWN 'Trade Or Fade Rule'

Under this rule, if a better bid is posted on another exchange for an option, and a market maker is unwilling or unable to match it for a client order, the market maker may offer to trade with the other market maker. The market maker offering the better price must accept the offer, and trade at the price offered, or adjust the bid.



RELATED TERMS
  1. Ask

    The price a seller is willing to accept for a security, also ...
  2. Exchange

    A marketplace in which securities, commodities, derivatives and ...
  3. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  4. Trade Through

    A stock market order that is not executed at the best possible ...
  5. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
  6. Market Maker

    A broker-dealer firm that accepts the risk of holding a certain ...
Related Articles
  1. Options & Futures

    Make Better Options Trades With The Average Monthly Range

    We'll show you how to use the average monthly trading range to score better returns.
  2. Options & Futures

    Option Spread Strategies

    Learn why option spreads offer trading opportunities with limited risk and greater versatility.
  3. Term

    The Difference Between a Long and Short Position

    Stocks are owned in a long position and owed in a short position.
  4. Options & Futures

    When Should I Sell A Put Option Vs A Call Option?

    Beginning traders often ask not when they should buy options, but rather, when they should sell them.
  5. Investing Basics

    Explaining Premiums

    Premium has a few different meanings in the financial world.
  6. Options & Futures

    How Do Options Work?

    An option is a contract that sets a price and time for the sale or purchase of a financial asset. It derives its value from the performance of an underlying security.
  7. Options & Futures

    What is a Hedge?

    A hedge investment offsets the risk of adverse price movements in another investment.
  8. Trading Strategies

    What is a Covered Call?

    A covered call is a call an investor sells on a stock he already owns.
  9. Options & Futures

    An Introduction To Structured Products

    Learn a simple way to bring the benefits of derivatives into your portfolio.
  10. Mutual Funds & ETFs

    PRWCX: Portfolio Trends in 2016

    Discover how the portfolio trends in the T.Rowe Price Capital Appreciation Fund helped to keep performance positive in 2016 and learn how it can help your portfolio.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Answer >>
  2. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Answer >>
  3. How do hedge funds use equity options?

    Learn about two of the most common equity option strategies hedge fund managers use every day to generate above-average returns ... Read Answer >>
  4. Can mutual funds invest in options and futures? (RYMBX, GATEX)

    Learn how mutual funds invest in stock options and futures to benefit from commodities price swings and hedge their portfolio ... Read Answer >>
  5. How does a forward contract differ from a call option? (AAPL)

    Find out more about forward contracts, call options, the mechanics of these financial instruments and the difference between ... Read Answer >>
  6. How can an investor profit from a fall in the utilities sector?

    Learn how an investor can profit from a fall in the utilities sector by employing speculation methods such as short selling ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center