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The mid price is the average between the bid price and the ask price of a particular stock. This differs from the bid-offer spread, which is simply the difference between the bid price and the ask price, or offer price, of that stock. Many daily newspapers use the mid price as the basis for the stock prices they publish, even though a buyer won't pay that price nor will a seller receive it. It is reported as such because it reaches a middle ground between the extremes of the bid and ask prices.
Whenever making investments, investors must be aware of the two sets of prices that are quoted by stock brokers on any stock in which they might be interested. The bid price is the price at which the broker will buy the stock from an investor, and the ask price, also known as the offer price, is the price at which the stock will be sold. Bid price is always the lower number, with the difference between the bid and ask essentially representing a service fee for the broker. When the average between the bid price and the ask price is calculated, the resulting number is known as the mid price.
For example, imagine that the closing bid price of a particular stock one day is $35 US Dollars (USD) per share, and the ask price is $37 USD per share. Calculating the average of any two amounts requires adding the two amounts and then dividing that sum by two. In this case, $35 USD is added to $37 USD, for a sum of $72 USD. That $72 USD is than divided by two, which yields a mid price for that stock of $36 USD.
Investors should be aware when preparing to buy or sell a stock that the mid price is not the actual amount the brokers will quote as either the buy or sell price. It is a way for financial newspapers to do a kind of shorthand reporting of the stock's price. If newspapers only report the average price, investors should be aware that, depending on the spread between the bid and ask prices, this average price might diverge somewhat from the actual trading prices.
How much of a spread there is for a different stock can depend on a number of factors, including the liquidity of that stock and the volatility of the market as a whole. Brokers will adjust the spread to make sure they don't incur losses. In addition, certain spread betting companies will have wider spreads to make up for an absence of commission fees. The mid price is a good way for investors to get an idea of where the stock stands regardless of the spread between bid and ask prices.
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