What actually moves the mid-price?

Question

The mid-price is defined as the average of the best bid and best ask. What events move the mid? Can the price move without any trade occurring? Can a trade occur without moving the price?

Accepted Answer

The mid = 	frac{1}{2}(	ext{best bid} + 	ext{best ask}) moves exactly when a best quote changes. That happens three ways: 1. A trade consumes an entire level. If the ask queue at 100.02 is fully lifted, the new best ask might be 100.03, mid ticks up. But a trade that takes only part of the level leaves the quotes, and hence the mid, unchanged: trades don't move the mid unless they exhaust a level. 2. Cancellations. Everyone at the best ask pulls their orders (say, on a news headline) and the next ask is higher. The mid jumps without a single trade. This is extremely common: most price disco…

What actually moves the mid-price?

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