The Price Improvement Ratio (PIR) is a quantitative metric that measures the extent to which an executed trade achieves a more favorable price than the prevailing best bid or offer (BBO) at the time the order was placed. In crypto trading, especially within RFQ and smart trading systems, a positive PIR indicates that the client secured a better price than was available on the primary public market. Its primary purpose is to evaluate execution quality, demonstrate value provided by a liquidity provider or execution venue, and benchmark trading performance.
Mechanism
Calculation of the Price Improvement Ratio involves comparing the actual execution price of a trade against the National Best Bid and Offer (NBBO) equivalent for crypto assets, or the best available price across aggregated liquidity sources, at the exact moment the order was submitted. For RFQ transactions, it compares the filled price against the BBO on reference exchanges when the quote was accepted. Automated trading systems meticulously track these data points for every execution, calculating the difference and expressing it as a ratio or percentage relative to the spread or order value.
Methodology
The strategic methodology for utilizing the Price Improvement Ratio involves integrating it into post-trade analytics and counterparty performance evaluations. Institutions use PIR to assess the effectiveness of their smart order routing logic, the competitiveness of liquidity providers in RFQ systems, and the overall efficiency of their execution strategies. A consistent positive PIR signals superior execution capabilities and reduced implicit trading costs. This metric serves as a key performance indicator for optimizing trading infrastructure and ensuring that institutional clients receive optimal pricing in the fragmented crypto market.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
