Midquote
Midquote is the midpoint between the best bid and best ask: (bid + ask)/2. It is the standard reference price for spread and execution-cost metrics.
Definition
Midquote is the midpoint between the best available buy price (best bid) and the best available sell price (best ask) in an order book.
Formula: M = (best bid + best ask) / 2
Why it matters
Midquote is widely used as a neutral reference price because it sits between the two sides of the market. Many trading cost metrics, including effective spread, measure how far your execution is from this midpoint.
How to use it correctly
• Capture bid and ask at the moment you submit the trade (or at the closest possible timestamp).
• Use best bid and best ask from the same snapshot.
• If you are analyzing multiple fills, compute Pexec as VWAP, then compare it to the midquote.
Common pitfalls
Stale quotes: Using bid and ask from a different moment can overstate or understate costs.
Last price confusion: Last traded price is not a substitute for midquote.
Wide spreads: When spreads are wide, midquote can be a weak proxy for true value, but it is still the standard reference for cost measurement.
AMM analog
AMMs typically do not have a best bid and best ask. A practical analog is the spot price immediately before your trade, which can be used as the reference price in AMM cost calculations.