Term · Liquidity & Trading
Mid-Price
In briefThe mid-price is the average of the best bid and ask and serves as a neutral price reference. It is a derived value and not a tradable execution price. In illiquid small caps with a wide spread, it often deviates noticeably from the prices actually achievable.
Definition
The mid-price is the calculated average between the best bid and ask price in the order book. It serves as a neutral reference for the fair price that favors neither the buy nor the sell side. As a derived value, it does not represent an actually tradable execution price.
How it is calculated
Formula. Mid-price = (best bid price + best ask price) ÷ 2
Why it matters for small caps
In illiquid small caps with a wide bid-ask spread, the mid-price can deviate significantly from prices actually achievable. Valuations at the mid-price then easily overstate the realizable proceeds.
Common misreadings
- The mid-price is not a guaranteed execution price; on an order, trading actually occurs closer to the ask or bid price, especially with low depth.
In the process
Frequently asked
How is the mid-price calculated?
As the arithmetic mean of the best bid price and the best ask price in the order book. It therefore lies exactly between the buy and sell sides.
Can you trade at the mid-price?
Usually not directly. Executions occur closer to the bid or ask price; the mid-price is primarily a reference measure.
Why is the mid-price tricky in small caps?
With a wide bid-ask spread and low depth, the actual execution can deviate significantly from the mid-price, which distorts valuations.
Related terms
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.