What is Mark Price and Index Price in Futures Trading?

[Estimated Reading Time: 3 mins]

Understanding Mark Price and Index Price is essential in futures trading as these values play a critical role in ensuring fair trading practices, especially during periods of market volatility. This article explains what these terms mean and how they influence your trading experience on Bitget.

Differences Between Mark Price and Index Price

Feature	Mark Price	Index Price
Definition	Fair price for liquidation and PnL calculation	Real-time global spot price of the asset
Calculation	Derived from Index Price and funding rates	Aggregated from multiple spot exchanges
Purpose	Prevent manipulation and ensure fairness	Reflects the actual market value
Usage	PnL and liquidation trigger	Foundation for Mark Price and funding rate

What is Mark Price?

Mark Price is a calculated value designed to ensure fairness in futures trading by preventing unnecessary liquidations caused by short-term price volatility or market manipulation. It represents the fair value of a contract, factoring in the underlying asset's price and market conditions.

Key Features of Mark Price:

• Calculation Basis: Mark Price is derived from a combination of the Index Price and funding rates, reflecting the true market value.

• Purpose: It minimizes the risk of unfair liquidations by reducing the impact of sudden price fluctuations in the market.

• Impact on Trading: Liquidation of futures positions is triggered based on the Mark Price, not the Last Traded Price, which can be influenced by temporary volatility or manipulation.

Example: Suppose the current Index Price of BTC is $90,000, but due to a temporary spike caused by a large order, the Last Traded Price rises to $95,000.

• The Mark Price, calculated using the Index Price and funding rates, may remain at $90,100, ensuring that traders are not liquidated unfairly due to the temporary spike.

What is Index Price?

The Index Price represents the real-time average price of an asset across multiple leading cryptocurrency exchanges. It serves as a benchmark for determining the fair value of a futures contract and is integral to calculating the Mark Price.

Key Features of Index Price:

• Calculation Basis: The Index Price aggregates price data from multiple exchanges, ensuring a comprehensive and unbiased view of the asset's market value.

• Purpose: It provides a reliable reference for the asset’s true market value, reducing dependence on a single exchange.

• Impact on Trading: The Index Price forms the foundation for calculating the Mark Price, ensuring fair trading conditions.

Example: Suppose BTC is trading at the following prices on three major exchanges:

• Exchange A: $89,800

• Exchange B: $90,200

• Exchange C: $90,000

The Index Price aggregates these values, calculating the average as $90,000. This value serves as the basis for determining the Mark Price.

Why are Mark Price and Index Price Important?

1. Fair Liquidations: Using the Mark Price prevents unwarranted liquidations caused by market manipulation or brief price spikes/drops.

2. Accurate Value Representation: The Index Price reflects the underlying asset’s market consensus, ensuring the contract’s value aligns with actual market trends.

3. Risk Management: Traders can monitor these prices to better manage their open positions and avoid unexpected losses.

FAQs

1. Can the Mark Price and Last Price be different?
Yes, they can differ. The Mark Price is derived from the Index Price with adjustments for funding rates and premiums, while the Last Price is the most recent price at which the asset was traded on the futures market.

2. How is the Index Price calculated on Bitget?
The Index Price is calculated by aggregating prices from major spot exchanges and averaging them, often using a weighted formula to eliminate anomalies and reflect the true market value.

3. Why is my position liquidated when the Last Price hasn't hit the liquidation level?
Liquidations are triggered by the Mark Price, not the Last Price. The Mark Price ensures fair liquidation thresholds, preventing manipulations and volatility spikes from affecting your positions unfairly.

4. What happens if there is a discrepancy between the Index Price and prices on certain exchanges?The Index Price uses a weighted average of multiple exchanges. If one exchange’s price deviates significantly, it may be excluded from the calculation to ensure fairness and accuracy.

5. Does the Mark Price affect the execution of trades?
No, the Mark Price is only used for calculating unrealized PnL and triggering liquidations. Trade executions are based on the Last Price.

6. How often are the Mark Price and Index Price updated?
Both the Mark Price and Index Price are updated frequently, typically every few seconds, to reflect real-time market conditions and ensure accuracy in pricing.

Disclaimer and Risk Warning

All trading tutorials provided by Bitget are for educational purposes only and should not be considered financial advice. The strategies and examples shared are for illustrative purposes and may not reflect actual market conditions. Cryptocurrency trading involves significant risks, including the potential loss of your funds. Past performance does not guarantee future results. Always conduct thorough research, understand the risks involved. Bitget is not responsible for any trading decisions made by users.