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. Trade Through

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

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

    A marketplace in which securities, commodities, derivatives and ...
  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. What is the difference between open interest and volume?

    In the options market, two measurements describe the liquidity and activity of option contracts. Volume is the amount of ... Read Full Answer >>
  2. What does a rising open interest on a stock signal?

    An increasing open interest indicates there are new option contracts on a stock being bought to open, and there is money ... Read Full Answer >>
  3. What options strategies are best suited for investing in the chemicals sector?

    The best option strategy for investing in the chemicals sector depends on which segment is being utilized. The chemicals ... Read Full Answer >>
  4. How is the spot price related to a derivative's notional value?

    A derivative's notional value is directly related to the spot price of the security. To calculate the total value of a derivative ... Read Full Answer >>
  5. What are some common markets where notional value is used?

    Notional value is commonly used in futures and swap markets. The notional value is the total net amount of derivative contracts, ... Read Full Answer >>
  6. What options strategies are commonly used for investing in the electronics sector?

    The long straddle and long strangle option strategies take advantage of the electronic sector's cyclical nature. Both strategies ... 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. Investing Basics

    Understanding Notional Value

    This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large position.
  4. Options & Futures

    The Risks Of Writing Covered Calls

    While writing a covered call option is less risky than writing a naked call option, the strategy is not entirely riskfree.
  5. Options & Futures

    How Low Can Oil Prices Go?

    Record low oil prices are a welcome development for consumers, but oil companies are struggling with choosing market share over profitability.
  6. Options & Futures

    SEC-Regulated Options Brokers

    Investopedia provides a List Of SEC-Regulated Options Brokers
  7. Options & Futures

    How To Trade Orange Juice Options

    How do orange juice options work and which factors determine the orange juice valuations? Here's a sneak peak into the world of orange juice options.
  8. 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.
  9. 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.
  10. 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.

You May Also Like

Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  3. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  4. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  5. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
Trading Center