Why Trades May Leave the Mid-Price Unchanged

Summary

The document explains that a trade does not have to move the mid-price when the mid is defined as the average of the best bid and best ask. If the top of book has enough displayed size, a market order smaller than that size can execute without removing the best bid or ask. The example describes equal quoted quantities at 10.00 and 10.10; a smaller market order leaves the midpoint at 10.05.

It also points out that trades are not necessary for the midpoint to change. A change in either best quote changes their average, even without an execution. This is a concise order-book illustration, not a broad empirical study. Its conclusion depends on the stated midpoint definition and assumes the trade does not consume enough liquidity to alter the best quotes; it does not discuss hidden liquidity, quote updates, or other price measures.

Key ideas

• The mid-price is the average of the best bid and best ask.
• A market order can execute without changing the mid-price if it does not exhaust the relevant best quote size.
• The example shows that a trade smaller than displayed top-of-book size can leave the midpoint unchanged.
• A best-bid or best-ask change can move the midpoint even when no trade occurs.
• The explanation concerns this midpoint definition and a simple quoted-book example.

Tags

# Does a trade always change the mid-price?


# Does a trade always change the mid-price?












I would like to ask:

Let assume that the mid-price now is `m0`, then a trade happens and the new mid-price is `m1`. Is it possible to have `m1 = m0` or it should be always different?

Thank you in advance.

## Answer by Bob Jansen (score 1, accepted)

https://quant.stackexchange.com/a/32878

If you define the mid price as the average of the best bid and best ask price the answer is no. If there are bids for 10 lots @ 10.00 and asks for 10 lots @ 10.10 markets orders smaller than 10 lots will not affect the mid price. The mid is 10.05 before and after.

This also implies that no trade is necessary to change the price. If the best bid or ask changes, the result of $$\frac{\mathrm{best\,bid} + \mathrm{best\,ask}}{2}$$ will also change.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.