Why Mid Price Backtests Lie
Mid price backtests can overstate Polymarket strategy performance by ignoring bid/ask spread, book depth, slippage, and partial fills.
Why mid price backtests lie is a simple execution problem: the midpoint is not a tradable price. A strategy may look profitable at the midpoint while losing money once spread, depth, and partial fills are included.
What Mid Price Hides
- The ask price you would pay to enter a long position.
- The bid price available when you exit.
- How much size exists at each level.
- Whether a larger order would cross multiple price levels.
Better Backtest Inputs
| Input | Why it matters |
|---|---|
| Best bid and ask | Models actual entry and exit prices. |
| Full depth | Estimates capacity, price impact, and partial fills. |
| Timestamped snapshots | Prevents look-ahead bias during replay. |
| Resolved outcome | Scores final payoff after settlement. |