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.

RELATED TERMS
  1. Crossed Market

    A crossed market is a situation arising when the bid price of ...
  2. Bid Support

    Bid support has many meanings within the financial industry, ...
  3. Trading Ahead

    Trading ahead occurs when a market maker trades securities from ...
  4. Fade

    Fade refers to a contrarian investment strategy used to trade ...
  5. Firm Quote

    A firm quote is a bid to buy or offer to sell a security or currency ...
  6. Bid Price

    Bid price is the price a buyer is willing to pay for a security. ...
Related Articles
  1. Investing

    Role Of A Market Maker

    A market maker is a firm or an individual that stands ready to buy and sell a particular security throughout the trading session to maintain liquidity and a fair and orderly market in that security. ...
  2. Investing

    How To Create A Real Estate Bidding War

    There are still many areas in the United States that are attractive enough to buyers that you can start a good, old-fashioned bidding war on your property.
  3. Trading

    The Basics of the Bid-Ask Spread

    The bid-ask spread is the difference between the bid priceĀ and ask priceĀ prices for a particular security.
  4. Trading

    High-Frequency Trading: A Primer

    An in depth look at how high-frequency trading works and who the players are.
  5. Trading

    Introduction to Level II Quotes

    Find out what's happening in a given stock with this service showing Nasdaq market makers' best bid and ask prices.
  6. Trading

    How To Avoid Closing Options Below Intrinsic Value

    To get the best return possible on your options trading, it is important to understand how options work and the markets in which they trade.
  7. Small Business

    What are antitrust laws?

    Learn about antitrust laws or "competition laws." These statutes protect consumers from predatory business practices by ensuring fair competition exists.
  8. Insights

    The NYSE and Nasdaq: How They Work

    Learn some of the important differences in the way these exchanges operate and the securities that trade on them.
RELATED FAQS
  1. What's the difference between a Nasdaq market maker and a NYSE specialist?

    What's the main difference between a specialist and a market maker? Not much. Both the New York Stock Exchange (NYSE) specialist ... Read Answer >>
  2. Why are the bid and ask quotes usually so far away from each other in after-hours ...

    The low volumes typically traded through after-hours trading systems can create wide bid-ask spreads. Read Answer >>
  3. Are Bid Prices of T-Bills Higher Than the Ask?

    An ask price of a security should typically be higher than the bid price. Find out why the method of quoting bid/ask of T-bills ... Read Answer >>
Trading Center