E/Q is a calculation that compares an execution price to the quote. The quoted spread refers to the difference between the bid and ask prices. The effective spread is calculated by comparing the execution price to the midpoint of the National Best Bid and Offer (NBBO).
100% E/Q means an order was executed at the bid price for a sell order or at the offer price for a buy order. A 0% E/Q means the order received the midpoint of the quoted spread. The lower the E/Q, the closer to midpoint the order executed.
“Best execution” practices help us keep our E/Q low
Vanguard Brokerage Services works with several trading partners to execute orders placed with us. We follow “best execution” practices so that you can get the best price for your order to buy or sell.
Here's how it works: When you place a brokerage order with us, your order makes a round trip—from you to the market and back to you. We route your order to one of our market centers, and we strive to get you the "best execution" price in a timely fashion by following these practices:
Effective over quoted spread (E/Q) is the industry measurement for trade quality. The lower the percentage, the better. We're constantly working to give you the best price on trades, and those efforts are reflected in our low E/Q.
Midpoint pricing means the order is filled with an average price that is directly in the middle of the quoted spread. For example, say you place an order to buy or sell the Vanguard Total Stock Market ETF (VTI), and the quote is bidding 222.20, asking 222.25. The fairest trade price for both parties would be 222.225, directly in the middle of the quoted spread.
Why aren't all trades midpoint?
Some market conditions can make it difficult to provide midpoint pricing on every order. Market conditions such as fast-moving quotes or a scarcity of shares could cause an order to not receive a midpoint execution. Orders are sent to market makers who do their best to manage those and many other market conditions.
A trade at the midpoint of the quoted spread is generally considered the best price available. We provided midpoint pricing on over 95% of Vanguard ETF trades.**
*For market orders on the S&P 500 Index sizes 100-499 for the 12-month period ending December 31, 2020.
**For all marketable orders with a share size of 1-1,999.