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.