What is a Minimum Guaranteed Fill Order- MGF?

Minimum guaranteed fill (MGF) orders are a guaranteed fill for small market orders from retail clients up to a specific size at the best posted bid or ask price. Each stock has an MGF volume that depends on its liquidity. Clients who place market orders or limit orders can benefit from MGF orders. 

Key Takeaways

  • Minimum guaranteed fill (MGF) orders are a guaranteed fill for small market orders from retail clients.
  • The MGF construct helps keep an orderly marketplace by offering liquidity.

How a Minimum Guaranteed Fill Order- MGF Works

A minimum guaranteed fill (MGF) order is a service provided by market makers involving their assigned stocks to maintain fair and orderly markets. The purpose of this type of order is to support the goal of maintaining a balanced, two-sided market where all investors can participate. The idea is to ensure that at least a minimal amount of securities can be bought and sold at any given time, to maintain a perpetual cycle of activity.

For small investors in particular, market structures such as an MGF order can help keep them motivated and prompt them to be optimistic about the potential rewards of participating in the market.

The specific market maker involved is tasked with serving a role of promoting liquidity while also maintaining a fair market. They are especially focused on serving the needs of small investors, which is why MGF orders typically involve small market orders.

The market makers offer this service because if they attract enough orders from retail in the same stock, they can capture the bid/ask spread. So, the MGF construct benefits the retail investor by being able to transact efficiently and fast. It benefits large market markers who can provide this service on a large scale and capture buy and sell orders in the process i.e. the spread.

Minimum Guaranteed Fill (MGF) Order Examples

The MGF for a particular stock is clearly defined. If a certain stock has a MGF of 500 shares, that means this stock will always have a quoted bid and offer size of at least 500 shares. If an investor wants to sell 400 shares, but only 200 are bid at the price they are seeking, they can still enter their sell order for their desired 400 shares and the order will be completely filled. The first 200 will be filled by the buyer who submitted the bid, and the remaining will be taken automatically by the market maker. However, if an investor attempts to sell 700 shares, which exceeds the established MGF for that stock, only the order for the 200 shares that have actually been bid will be completed.

Another example: assume a stock that has an MGF volume of 1,200 shares is trading at $4–$4.10, with 600 shares bid for $4, and 400 shares offered at $4.10. If a client puts in a market order to purchase 900 shares, they will receive 400 shares at the posted offer price of $4.10, and the balance 500 shares from the market maker, also at $4.10.