Last Price and Index Price

I. Last Price

Last Price refers to the last traded price of a futures contract, updated in real time and displayed in the order book. This metric, a must-watch especially for intraday traders and scalpers, reflects an immediate snapshot of current market conditions. It helps traders make timely decisions based on the latest data.

Primary Uses:

l Tracking the current market quotation.

l Calculating realized PnL (profit and loss from closed positions).

II. Index Price

Index Price is a fair price calculated with the weighted average of prices collected from multiple major crypto exchanges. These weights are dynamically updated every four hours to align with fluctuations on these platforms. Utilizing the index price helps you sidestep exchange-specific anomalies, making it advantageous for swing trading positions. Notably, this aggregated price is primarily used to calculate funding fees, ensuring fair funding rates across the market.

Primary Uses:

l Calculating unrealized PnL (i.e. floating profit and loss from open positions).

l Acting as the trigger benchmark for liquidations. A position is only liquidated if the index price reaches the liquidation threshold, helping prevent forced liquidations caused by malicious price manipulation on a single exchange.

III. Mark Price

Mark Price is a theoretical fair value calculated through a specific algorithm. Unlike the last price, it does not represent an actual trade on an exchange. It mainly reflects the true market value of an underlying asset and reduces the risk of unfair liquidations caused by thin liquidity or market manipulation.

· Market Price: The actual price at which orders are executed and closed on an exchange's order book, which can be highly volatile.

· Mark Price: A reference price used to calculate unrealized PnL and determine liquidation triggers. It is smoother, more stable, and fairer.

1. How Mark Price is Calculated

The mark price is determined by the two key elements:

(1) Index price

Derived from aggregated spot prices across multiple major, highly liquid, and reliable global exchanges.

(2) Funding rate (for perpetual futures)

Ensures perpetual futures contracts track spot prices closely.

a. When the market is bullish, longs pay funding fees to shorts.

b. When the market is bearish, shorts pay funding fees to longs.

The expected funding rate adjustment is factored into the mark price calculation.

(3) Calculation method

The mark price is the median of the following three prices:

a. Funding basis fair price

b. Impact bid/ask price

c. Last EMA price

Special cases:

a. If one reference price is disabled, the mark price equals to the average of the remaining two, i.e., (a+b) / 2.

b. If two prices are disabled, the mark price equals to the remaining reference price.

2. Mark Price's Core Functions

Mark Price is crucial for risk control and serves three main functions:

(1) Preventing unfair liquidations

Relying only on the market price for liquidations is risky because it's vulnerable to pumping and dumping by whales, which could push the price up and down in a short time to trigger a cascade of liquidations. That's why we use the mark price, a composite price across multiple spot markets, which smooths out these manipulation attempts and creates a fairer trading field for average traders.

(2) Fair calculation of unrealized PnL

Floating PnL is calculated based on the mark price to avoid extreme swings caused by temporary price anomalies on an exchange. Formula:

Unrealized PnL = (Mark price - Average entry price) * Position size

This better reflects the true market value of open positions while filtering out short-term noise.

(3) Liquidation trigger benchmark

The system uses the mark price to calculate margin ratios and liquidation prices. A forced liquidation occurs only when the mark price reaches the liquidation price. This means traders are protected from being liquidated by temporary volatility in the local market.