Why Mark Price Exists
Without mark price, liquidations would be based on the last traded price on a single exchange. This creates problems:
- Market manipulation: A whale could briefly crash the price to liquidate others
- Low liquidity wicks: Thin order books could cause unreasonable price spikes
- Exchange-specific anomalies: One exchange's price might diverge temporarily
How Mark Price Is Calculated
Mark Price = Spot Index Price + Decaying Funding Basis
Where:
- Spot Index Price: Weighted average of spot prices across multiple major exchanges
- Funding Basis: Adjusts for the premium/discount of the contract relative to spot
Example:
- Spot index (average of Binance, Coinbase, Kraken spot): $50,000
- Current contract price on this exchange: $50,100
- Mark price might be: $50,050 (between index and contract price)
Mark Price vs Last Price
| Aspect | Mark Price | Last Price |
|---|---|---|
| Basis | Multi-exchange index | Single exchange last trade |
| Manipulation resistant | Yes | No |
| Used for | P&L and liquidation | Order execution |
| Stability | More stable | Can be volatile |
Why Mark Price Matters for Margin Traders
1. Liquidation is based on mark price, not last traded price 2. Your unrealized P&L is typically calculated using mark price 3. It protects you from being unfairly liquidated by price manipulation 4. Understanding mark price helps you predict liquidation levels more accurately