Reference Prices (Bid/Mid/Last/Mark)
Definition
Reference Prices are different ways to quote price: Bid/Ask, Midpoint, Last traded, and Mark (reference for PnL).
Types of Reference Prices
Bid Price
The highest price a buyer is willing to pay right now.
Example:
- 5 buyers want to pay $0.48
- 3 buyers want to pay $0.47
- Bid = $0.48 (highest)
Usage:
- Where you can sell immediately
- Lower than ask
- Market maker's buy price
Ask Price
The lowest price a seller is willing to accept right now.
Example:
- 4 sellers asking $0.51
- 8 sellers asking $0.52
- Ask = $0.51 (lowest)
Usage:
- Where you can buy immediately
- Higher than bid
- Market maker's sell price
Midpoint Price
The average of bid and ask.
Formula:
Midpoint = (Bid + Ask) / 2
Example:
- Bid = $0.48
- Ask = $0.51
- Midpoint = $0.495
Usage:
- Fair value estimate
- Portfolio valuation (unrealized)
- Reference for spreads
- Note: Cannot trade at mid (unless limit fills)
Last Price
The most recent executed trade price.
Example:
- Current bid/ask: $0.48 / $0.51
- Last trade: $0.49 (happened 10 minutes ago)
- Last = $0.49
Usage:
- Recent market sentiment
- Price charts typically use last
- Caution: May be stale in slow markets
Mark Price
A reference price for calculating unrealized PnL.
Calculation (varies by platform):
Mark = Midpoint
or
Mark = Last (if recent)
or
Mark = Index / Fair Value (advanced)
Example:
- Bid/Ask: $0.48 / $0.51
- Mark = $0.495 (midpoint)
- Your position of 1,000 shares
- Unrealized PnL = 1,000 × ($0.495 - entry price)
Usage:
- Portfolio valuation
- P&L calculations
- Margin requirements (if applicable)
Price Relationships
Normal Market
Bid < Midpoint < Ask
Example: $0.48 < $0.495 < $0.51
Last Price Position
- Last = Bid: Recent sell
- Last = Ask: Recent buy
- Last between: Could be either
- Last outside: Stale data, market moved
Use Cases
For Buyers
Aggressive (want immediate fill):
- Use Ask price
- Place market order
- Or limit at/above ask
Patient (wait for better price):
- Use Bid price or below
- Place limit order
- Join the queue or undercut
Fair value assessment:
- Check Midpoint
- Estimate true cost
- Compare to edge
For Sellers
Aggressive (sell now):
- Use Bid price
- Place market order
- Or limit at/below bid
Patient (wait):
- Use Ask price or above
- Place limit order
- Wait for buyers
For Analysis
Current fair value:
- Midpoint is best estimate
- Where market would clear
- Neither buyer nor seller advantage
Recent sentiment:
- Last price shows direction
- Consecutive highs = bullish
- Consecutive lows = bearish
Example Market Snapshot
Market: "Will GDP exceed 3%?"
Bid: $0.48 (500 shares)
Ask: $0.51 (800 shares)
Midpoint: $0.495 (calculated)
Last: $0.49 (2 minutes ago)
Mark: $0.495 (for PnL)
Interpretation:
- Can sell immediately at $0.48
- Can buy immediately at $0.51
- Spread = $0.03 (3¢)
- Fair value ≈ $0.495
- Recent trade at mid, market balanced
Price Display
Platform Differences
Kalshi:
- Shows bid/ask clearly
- Last price in chart
- Mark for positions
Polymarket:
- Current buy/sell prices
- Mid implied in display
- Charts use last
Other Platforms:
- Varies
- Some show full depth
- Some simplified
For Portfolio Valuation
Unrealized PnL Calculation
Using Mark Price (midpoint):
Position: +1,000 shares
Entry: $0.40
Mark: $0.495
Unrealized PnL = 1,000 × ($0.495 - $0.40)
= 1,000 × $0.095
= $95
Why Midpoint?
- More fair than bid or ask
- Liquid exit assumption
- Standard accounting practice
Reality Check:
- To realize $95, need to sell at bid ($0.48)
- Actual exit = 1,000 × ($0.48 - $0.40) = $80
- Spread cost = $15
Common Mistakes
Mistake 1: Using Last for Large Orders
- Last = $0.50
- You want to buy 10,000 shares
- Wrong: Assume $0.50 cost
- Right: Check ask and depth
Mistake 2: Ignoring Spread
- Mid = $0.495
- Think you can trade there
- Reality: Must pay ask ($0.51) or sell at bid ($0.48)
Mistake 3: Stale Last Price
- Last = $0.30 (from yesterday)
- Market now $0.50 / $0.51
- Wrong: Think price is $0.30
- Right: Use current bid/ask
Advanced: Fair Value
When Prices Disagree
- Bid = $0.48
- Ask = $0.51
- Last = $0.54 (????)
Issue: Last is outside bid/ask (stale or error)
Solution: Use midpoint ($0.495) as fair value
Weighted Midpoint
Some platforms use:
Weighted Mid = (Bid × AskSize + Ask × BidSize) / (BidSize + AskSize)
Accounts for depth imbalance.
Practical Tips
Always Check Bid/Ask
- Most accurate current prices
- Last can be misleading
- Mid is theoretical
Use Appropriate Price
- Selling? Look at bid
- Buying? Look at ask
- Valuing? Use mid
- Analyzing? Consider last + spread
Account for Spread
When calculating EV:
True Cost = Ask Price + Fees
True Exit = Bid Price - Fees
Round Trip = Ask - Bid + 2 × Fees