Microprice
Also: micro price · weighted mid
The microprice is a size-weighted fair value between the bid and ask, pulled toward the heavier side of the book. It estimates where price is really trading given standing liquidity.
The naive “mid” is just (bid + ask) / 2. It ignores how much size sits on each side. If there are 500 contracts bid and 20 offered, the true clearing price is closer to the ask — buyers vastly outnumber sellers at the top of the book.
The microprice fixes this by weighting the mid toward the thinner side (which price must move toward to clear the imbalance). Formally it weights bid and ask by the opposite queue sizes, so a heavy bid pushes the estimate up.
Why an agent cares: the microprice is a cleaner reference than the mid for deciding whether a quote is rich or cheap, and for measuring true execution cost. When an agent estimates slippage or fair entry, anchoring to the microprice instead of the mid avoids systematically mispricing entries in imbalanced books — common in thin perp markets between funding windows.
- microstructure
- fair value
- order book
Research source: rSwarm research library →