Fill Ratios And Hit Rates

A market maker posts thousands of quotes a day, but only some of them get traded against. The fill ratio (also called hit rate) is the fraction that do: fills divided by quotes posted, or sometimes fills divided by quoting time. It sounds like a number you'd want as high as possible — more trades, more spread captured. In practice a market maker that gets filled on almost everything it quotes is often a market maker being picked off, not one running a healthy book.

Why "more fills" isn't automatically good

Every fill happens because someone on the other side decided your quote was worth trading against right now. Some of those counterparties are uninformed — a pension fund rebalancing, a retail order routed by a broker — and trading against them earns the spread cleanly. Others are informed: a trader who knows a piece of news is about to move the price and is racing to trade at your stale quote before you can cancel it. A market maker's hit rate spikes right before a hard move precisely because the fastest, most informed flow finds slow quotes first. A very high fill ratio on quotes that were sitting stale for too long is usually a symptom of getting picked off by that informed flow, not a sign of doing more business.

Worked example: comparing two days

On Monday, a desk posts 10,000 quotes and gets filled on 400 of them — a 4% hit rate — and those fills average a small positive spread capture after the market's next move is accounted for. On Tuesday, ahead of an earnings release, the desk posts 10,000 similar quotes but gets filled on 900 of them — a 9% hit rate, more than double. It looks like a better day by volume, but when the desk marks each fill against the price a few seconds later, most of Tuesday's extra fills lost money: quotes sitting on the book got hit right before the price moved against them. The higher hit rate wasn't more business, it was more adverse selection.

Reading the metric properly

$$\text{fill ratio} = \frac{\text{number of quotes filled}}{\text{number of quotes posted}}$$

In plain English, this is simply "how often did someone trade against me," and on its own it says nothing about whether those trades were profitable. Desks pair it with post-fill markout — the price move in the seconds after each fill — to separate healthy fills that captured spread from toxic fills that got run over. A rising fill ratio combined with worsening markouts is the classic warning sign that quotes are too slow relative to how fast the market is moving, and the desk is losing the race to cancel before informed traders arrive.