Mark price
Also called: fair price · marking price
Definition
The mark price is a fair-value price an exchange uses to calculate unrealized profit and loss and to trigger liquidations, instead of the last traded price.
How mark price works
The last traded price on a single futures order book can spike for a moment because of one large order or thin liquidity. If liquidations used that price, traders could be wiped out by a wick that lasts a second. The mark price smooths this out.
Exchanges typically build the mark price from the index price, an average of spot prices across several major exchanges, plus a smoothed measure of the futures premium or basis. Some use a median of several inputs. The exact formula differs by exchange and is published in its documentation.
In practice, your unrealized PnL, margin ratio and liquidation are based on the mark price. Many platforms let you choose whether a stop-loss triggers on the mark price or the last price. The two are usually close, but in volatile moments they can differ, which explains many surprises about when a position closed.
Example
Suppose a perpetual's last price briefly drops from 2,500 to 2,380 USDT when a large market sell hits a thin order book, while spot prices on other exchanges stay near 2,495. The mark price, anchored to the index, only dips to about 2,492. A long with a liquidation price of 2,400 survives, because the mark price never reached it, even though the chart shows a wick to 2,380.
Common mistakes
- Watching only the candlestick chart, which shows the last price, to judge liquidation risk.
- Not checking whether stop-loss orders trigger on the mark price or the last price.
- Assuming the mark price is the same on every exchange.
Learn and practise
FAQ
What is the difference between mark price and last price?
Last price is the latest trade on that order book. Mark price is a smoothed fair value based mainly on the index, used for PnL and liquidation.
Why do exchanges use mark price for liquidation?
To stop brief price spikes or manipulation on one order book from causing unfair liquidations.