What Are Index Price, Mark Price, and Last Traded Price?
Index price, mark price, and last traded price are fundamental and extremely important concepts when trading crypto derivatives on exchanges. Let's find out what they are and their role in making investment decisions.
Why do we need index price, mark price, and last traded price?
When you trade on spot markets, you essentially exchange a certain amount of an asset for a different amount of another asset. However, when you trade derivatives like futures, you do not necessarily own an asset, but rather trade contracts that reference the asset. This leads to the demand of derivatives contracts for spot price data, so that activities such as longing and shorting futures contracts are viable. That's where index price, mark price, and last traded price come into play.
Overview of mark price, index price, and last traded price
The concept of index price
The exchange index price, or often called index price in short, is the average spot price of a certain token on major exchanges. Usually, the index price of one cryptocurrency is calculated differently from one exchange to another, depending on which exchanges constitute the list of "major exchanges" whose data are taken into consideration.
The index price is calculated as follows:
Index price = Spot price of exchange 1 x Weight of exchange 1 + Spot price of exchange 2 x Weight of exchange 2 + …
The higher the trading volume of an exchange, the higher the weight number of that exchange. This means that the exchange with greater trading volume will have more influence over the index price.
The purpose of index price is to provide a fair and accurate price of an asset in all facets of derivatives trading, including futures, perpetuals, and funding rates to name a few. In other words, index price makes sure that derivatives contracts are settled at the right price.
As one of the biggest derivatives exchanges in the crypto market, Bitget commits to offering the best products and the fairest and most accurate prices possible for users. Index prices on Bitget are derived from three top CEXes, which are Binance, OKX, and Huobi. You can see the sources used to compile index price at the lower half in every derivatives trading page on Bitget like this:
The concept of mark price
Mark price is another important factor of derivatives trading. It is used as a reference in triggering liquidations, as well as in calculating leverage and unrealized profit and loss. Its purpose is to make performing liquidations fair and manipulation-resistant.
Two things to note:
- Mark price is used to measure unrealized profit and loss, but does not actually affect your profit and loss.
- Your position is only liquidated when the mark price equals your liquidation price.
Basically, the mark price is the mid-price of the order book, but to make sure the mark price is fair and does not diverge too far from the spot price, it is bound by the index price, which means that mark price is influenced by the spot price from various major exchanges. However, the actual formula to calculate mark price differs from one type of derivatives to another, and it is too complicated to get into such nitty-gritty in this 101 article, so we will only look into the basics of mark price.
Apart from the index price, mark price also takes another component called the moving average basis into account. This component serves one goal, which is to offer a constantly updated average price of a certain token over a period of time, thereby providing a fair price and limiting unnecessary liquidations when the volatility is high.
Important things need to be repeated: The mark price is the price that you need to pay attention to for leverage, profits-and-loss calculations, and liquidations.
The concept of last traded price
Last traded price is the latest price at which derivatives contracts are traded and it is updated in real time. While mark price is only used to calculate unrealized profit and loss, last traded price is actually used to determine the realized profit and loss.
Because of their natures and how they are calculated, last traded price may differ from mark price.
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