Difference Between Mark Price, Index Price, and Last Trade Price in Margin Contracts

Important Price Types Traders Need to Know

When participating in margin trading, you will frequently encounter three price concepts: the last traded price, the index price, and the mark price. Understanding the differences between them is essential for risk management and avoiding sudden liquidations.

What Is the Last Traded Price?

This is the actual price displayed on the order book at the current moment, continuously updated during trading. It accurately reflects what you see on the screen, but during high volatility periods, this price can fluctuate abruptly.

What Is the Index Price - The Scientific Calculation Basis?

The index price is not derived from a single exchange. Instead, it is calculated by taking the most recent trading prices from at least three different exchanges with sufficient liquidity, then computing a weighted average. This method aims to eliminate abnormal fluctuations on a specific exchange and produce a fairer price level.

What Is the Mark Price - The Liquidation Determination Factor?

This is the most important concept for traders. The mark price is calculated from the index price and a base moving average. The key difference: forced liquidation is executed based on the mark price, not the last traded price. That means even if the price jumps sharply, you will not be liquidated immediately if the mark price remains safe.

How to Calculate the Index Price - A Special Method

Index Price Update Process

To calculate the index price, the platform performs the following steps:

1. Real-time Data Collection: Extract price and volume data from corresponding trading pairs on designated exchanges.

2. Exclude Outdated Data: Exchanges undergoing maintenance or not updating data within a certain period will be excluded from the calculation.

3. Convert to a Common Unit: For BTC trading pairs, prices are converted to USDT by multiplying with the platform’s BTC/USDT index.

4. Apply Weights When Necessary: If some exchanges lack valid data, available data will be weighted according to additional protective rules.

Additional Protective Measures

The platform applies rules to prevent situations when the market encounters issues:

• When there are three or more exchanges: All exchanges are given equal weights. If one exchange’s price deviates more than 3% from the average price, it will be adjusted to 97% or 103% of the average price ( depending on the deviation).

• When only two exchanges have data: Both are assigned equal weights.

• When only one exchange has valid data: The most recent trading price from that exchange is used directly as the index price.

What Is the Mark Price - Formula and Application

How to Calculate the Mark Price for Futures and Perpetual Swaps

The mark price combines the spot index price with a component called the base moving average. This mechanism aims to smooth out short-term price fluctuations and reduce forced liquidations caused by abnormal volatility.

Calculation formula:

• Mark Price = Spot Index Price + Base Moving Average
• Base Moving Average = Moving average ( of (Mid-price of the contract - Index price))
• Mid-price of the contract = (Best bid + Best ask)

The “base moving average” component can be positive or negative, adjusting the mark price up or down relative to the pure index price.

Where Is the Mark Price Used?

The mark price is used as the basis for unrealized profit and loss calculations for both crypto margin contracts and USDT margin contracts.

For crypto margin contracts:

• Long position PNL = Contract value × |Number of contracts| × Multiplier × (1 / Average fill price - 1 / Average mark price)
• Short position PNL = Contract value × |Number of contracts| × Multiplier × (1 / Average mark price - 1 / Average fill price)

For USDT margin contracts:

• Long position PNL = Contract value × |Number of contracts| × Multiplier × (Average mark price - Average fill price)
• Short position PNL = Contract value × |Number of contracts| × Multiplier × (Average fill price - Average mark price)

Summary: What Is the Mark Price and Why Is It Important?

The mark price is used to determine your unrealized profit and loss and decide whether your position will be liquidated. It is not the actual trading price; it is designed to protect traders from short-term abnormal price swings. By combining index prices from multiple sources and adding a moving average component, the system creates a more stable price level to assess your account health.

Understanding these three price types will help you better manage risks and avoid unexpected liquidations in margin trading.