Mid-Price Execution is a trading strategy or order type where an order is executed at the midpoint between the current best bid and best ask prices available in the market. Its primary purpose is to minimize transaction costs and achieve a fair price by avoiding crossing the bid-ask spread, particularly for orders that do not require immediate fill.
Mechanism
This execution mechanism typically operates within dark pools, internal crossing networks, or through smart order routers designed to identify latent liquidity at the mid-price. The system continuously monitors the visible order book, calculates the prevailing midpoint, and attempts to match orders at or near this price, often with a specific time-in-force instruction.
Methodology
The methodology behind mid-price execution seeks to reduce explicit trading costs by capturing spread savings, which is highly beneficial for institutional investors trading in crypto assets. It relies on the presence of natural two-sided order flow to find matches without revealing order intent to the broader market. Success is contingent on sufficient liquidity at the mid-price and sophisticated algorithms to manage potential adverse selection and information leakage.
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