What Is a Minimum Guaranteed Fill (MGF) Order?
A minimum guaranteed fill (MGF) order in the financial markets requires traders to fulfill small purchases from retail investors at the best current bid or ask price if the purchases are at or below the set minimum.
Individual investors who place market orders or limit orders may benefit from MGF orders.
- Minimum guaranteed fill (MGF) orders enable individual investors to purchase small amounts of stock at the best current price.
- Orders in amounts up to or below the MGF are filled without delay.
- The MGF system benefits the market as a whole by ensuring liquidity and efficiency.
How an MGF Order Works
A minimum guaranteed fill order is intended to enable an investor who buys seven shares of stock to get as fair a price as an investor in 100 shares. It also ensures that at least a minimal amount of the most widely-held stocks can be bought and sold without delay at any given time, maintaining a perpetual cycle of activity.
The job of the market maker or trader is in part to promote liquidity while maintaining a fair market for a specific list of stocks. They are focused on individual investors, which is why MGF orders typically involve small market orders.
The trader's employer, the market maker, offers this service because it helps attract enough orders for the same stock to capture the bid/ask spread.
So, an MGF benefits the retail investor by making the transaction fast and efficient. It benefits market markers who can provide this service on a large scale and capture buy and sell orders in the process.
Examples of MGF Orders
The MGF for a particular stock is clearly defined. If a certain stock has an MGF of 500 shares, that 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 sought, the investor can still enter the sell order for 400 shares and the order will be completely filled. The first 200 will be filled by the buyer who submitted the bid, and the remainder 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, the client 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.