Trade Or Fade Rule

AAA

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.

INVESTOPEDIA EXPLAINS '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. Trade Through

    A stock market order that is not executed at the best possible ...
  4. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  5. Market Maker

    A broker-dealer firm that accepts the risk of holding a certain ...
  6. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
RELATED FAQS
  1. How can an investor profit from a decline in the aerospace sector?

    Several forms of speculation enable investors to profit from a decline in the aerospace sector. Short selling aerospace stock ... Read Full Answer >>
  2. When is a put option considered to be "in the money"?

    An option contract is a financial derivative that represents a holder who buys a contract sold by a writer. The moneyness ... Read Full Answer >>
  3. What options strategies are best suited for investing in the aerospace sector?

    The best options strategies for investing in the aerospace sector exploit the sector's volatility and propensity for big ... Read Full Answer >>
  4. What options strategies are best suited for investing in the Internet sector?

    The long straddle and long strangle options strategies enable investors to capitalize on the Internet sector's volatility. ... Read Full Answer >>
  5. How many attempts at the Series 7 exam are permitted?

    The National Association of Securities Dealers (NASD) has not placed any limits on the number of times you can attempt to ... Read Full Answer >>
  6. Where can I buy covered call ETFs (exchange-traded funds)?

    Covered calls can be traded through any major retail broker. Investors need to have their brokerage accounts approved for ... Read Full Answer >>
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. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  4. Options & Futures

    Why Is Best Buy Stock So Volatile?

    We look at why BBY has been so volatile in the past and whether this trend is likely to continue or abate in the future.
  5. Investing Basics

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.
  6. Options & Futures

    Circumvent Limitations of Black-Scholes Model

    Mathematical or quantitative model-based trading continues to gain momentum, despite major failures like the financial crisis of 2008-09, which was attributed to the flawed use of trading models. ...
  7. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.
  8. Trading Strategies

    A Guide Of Option Trading Strategies For Beginners

    Options offer alternative strategies for investors to profit from trading underlying securities, provided the beginner understands the pros and cons.
  9. Trading Systems & Software

    Brokerage Reviews: TradeStation Vs. Interactive Brokers

    These are among the most sophisticated brokers in the industry in terms of investment offerings, market access and technology.
  10. Options & Futures

    How To Lock In Low Oil & Gas Prices

    We provide a quick overview of how companies can manage the risk of adverse moves in commodity prices by hedging in the futures market.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center