We develop a structural model for the price formation and liquidity supply of an asset. Our model facilitates decompositions of both the bid–ask spread and the return variance into components related to adverse selection, inventory, and order processing costs. Furthermore, the model shows how the fragmentation of trading volume across trading venues influences inventory pressure and price discovery. We use the model to analyze intraday price formation for gold futures traded at the Shanghai Futures Exchange. We find that order processing costs explain about 50% of the futures bid–ask spread, whereas the remaining 50% is equally due to asymmetric information and to inventory costs. About a third of the variance in futures returns is attributable to microstructure noise. Trading at the spot market has a significant influence on futures price discovery, but only a limited impact on the futures bid–ask spread. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:545–563, 2016