Midpoint Order
A midpoint order is a non-displayed order type that executes at the midpoint of the national best bid and offer, allowing both buyer and seller to achieve price improvement by splitting the bid-ask spread rather than paying the full spread at the posted quotes.
The bid-ask spread is an inherent transaction cost in equity trading. When a buyer submits a market order, they purchase at the posted offer price; when a seller submits a market order, they sell at the posted bid price. The difference — the spread — is the cost of immediacy. A midpoint order removes this cost by meeting counterparties at the exact center of the spread, with both sides receiving a price better than the current best quote.
Midpoint orders are non-displayed, meaning they do not appear on the public order book. They reside in dark pools, alternative trading systems, or the non-displayed matching facilities of exchanges. When two compatible midpoint orders meet — one to buy and one to sell — the trade executes at the current NBBO midpoint. The executing venue calculates the midpoint continuously in real time and matches eligible orders as the midpoint shifts.
In U.S. markets, midpoint matching facilities are offered by many major venues including IEX, Nasdaq, NYSE Arca, and numerous ATSs registered with FINRA. The IEX exchange famously incorporated a 350-microsecond speed bump (the coil) along with its midpoint order type to limit the ability of high-frequency traders to step in front of resting midpoint orders during quote transitions.
Midpoint orders are most effective in securities with consistent, stable spreads and reasonable liquidity on both sides. In rapidly moving markets where the NBBO is updating dozens of times per second, a midpoint order may experience frequent price updates before matching, and execution certainty decreases. Regulatory disclosures under SEC Rule 606 (order routing) and Rule 605 (execution quality) provide investors and institutions with information about how frequently orders routed to various venues achieve midpoint or better execution.
For retail investors, midpoint-equivalent execution can be accessed indirectly through retail-focused order routing arrangements where wholesalers internalize orders at prices at or better than the midpoint. Understanding this mechanism helps investors evaluate the true cost of trading beyond the nominal commission.