A single micro-price (e.g., volume weighted mid adjusted for recent trades) is simpler and can be used for pricing both our bid and our offer.

But a bid fair and an offer fair have the desirable property that they widen out automatically as the market goes from one tick wide to five ticks wide.

As an example, given a futures book of 20 @ 6.01 / 6.03 @ 50 we would have a micro-price of 6.016 (since the bid has less volume) or a bid & offer fair of 6.012 & 6.026 (again, the bid is weaker).

Which approach is better and why?

EDIT: The above example shows two choices, a single micro-price of 6.016 or a bid/offer pair of 6.012 / 6.026.

If the market widened to 10 @ 6.01 / 6.09 @ 10, the choices would be a single micro-price of 6.05 or a bid/offer pair of 6.01 / 6.09. That shows one of the main advantages of using a bid/offer pair, they widen automatically as the market you are pricing gets wider.

  • $\begingroup$ Could you please clarify "a bid fair and an offer fair have the desirable property that..." what is this "fair" value? I do not see any alternative in your question but you ask "Which approach is better", could you again clarify? $\endgroup$
    – lehalle
    Commented Sep 15, 2019 at 15:37
  • 1
    $\begingroup$ If you are a market maker then you are constantly quoting a bid AND an offer. I do not understand what you are asking? $\endgroup$
    – roz
    Commented Sep 16, 2019 at 16:29
  • $\begingroup$ Agree with roz, you need to come up with both prices, so you might as well model them separately. If someone hits your offer, you don’t necessarily want to raise your bid...? $\endgroup$ Commented Dec 10, 2019 at 22:02

1 Answer 1


I would hesitate to call a size-adjusted price the "fair". There was some confusion in the comments since a "fair" is the intrinsic value, such as the NAV of an ETF.

I am also concerned with any manipulation of a quote that brings the bid and ask inwards. Your example converts 6.01 to 6.012, which would indicate that I could sell my own contract to the market for that rate, which is false. An arbitrage calculation must not use a price that is better than what the market will allow.

That said, I personally have seen traders who use size-adjusted mids, but I find them really difficult to reason about, especially when the market is volatile. I just use the regular bid and ask since that makes everything easier.


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