When the microprice equals the mid, and when it swings
Asked at Optiver, Flow Traders
A stock is quoted bid , ask throughout. Consider two snapshots of the resting sizes:
- Snapshot A: shares bid, shares ask.
- Snapshot B: shares bid, shares ask.
Compute the microprice in each case. Which one equals the mid, and by how much does the size shift move fair value?
Show a hint
The microprice weights each price by the opposite side's size. What happens to the weights when both sides are equal?
Your answer
This one is open-ended. Work it through, then check your reasoning against the full solution.