Cryptocurrency trading involves multiple price types that serve different purposes, from order execution to calculating profits and losses. Grasping these concepts is essential for effective risk management and informed trading decisions. The three primary price types you’ll encounter are the last traded price, the index price, and the mark price.
Each serves a unique function in the trading ecosystem. The last traded price is the most recent price at which an asset was bought or sold on an exchange. The index price is a composite value derived from multiple external trading venues to reflect a fair market value. The mark price is a calculated value used primarily to determine unrealized profit and loss (PnL) and to avoid unnecessary liquidations due to market volatility.
This guide breaks down each price type, explaining how they are calculated and why they matter for your trading strategy.
What Is the Last Traded Price?
The last traded price is the price at which the most recent transaction for a cryptocurrency occurred on a specific exchange's order book. It is a real-time, spot price that reflects the immediate market sentiment and liquidity on that platform.
However, the last traded price can be highly volatile. A single large order can cause significant price swings, making it a less reliable measure of an asset's broader market value. This is why more stable and representative prices, like the index and mark prices, are used for critical functions like derivatives settlement.
Demystifying the Index Price
The index price is a weighted average price of an asset, calculated using the latest traded prices from multiple major exchanges with sufficient liquidity. By aggregating data from at least three different venues, the index price aims to provide a fair and accurate representation of the global market price, insulating it from anomalies on any single exchange.
For instance, a USDT-margined futures contract might use a USDT index price, while a crypto-margined futures contract could use a USD index price for the underlying asset. This methodology helps ensure that the pricing is robust and reflects genuine market conditions.
How Is the Index Price Calculated?
The process involves continuously retrieving price and trading volume data for specific trading pairs from a pre-selected group of exchanges. The data is weighted and averaged to compute the index.
To maintain integrity, several protective mechanisms are often employed:
- If an exchange's price deviates by more than a set percentage (e.g., 3%) from the median price of all selected exchanges, its price is adjusted to within the acceptable band.
- If data from only two exchanges is available, their prices are equally weighted.
- In the rare event that only one exchange provides valid data, its last traded price may be used directly as the index price.
This multi-layered approach helps create a stable and reliable benchmark price.
The Role of the Mark Price
The mark price is arguably the most important price for traders using leverage or holding futures positions. It is a synthetic price used to calculate unrealized PnL and to determine whether a position is at risk of liquidation.
The mark price is not simply the last traded price on the exchange. Instead, it is calculated using the following formula:
Mark Price = Index Price + Basis Moving Average
- Basis Moving Average: This is the moving average of the difference between the contract's mid price and the index price. The mid price is the average of the best bid and best ask prices on the order book.
By incorporating a moving average of the basis (the difference between the futures price and the spot index price), the mark price smooths out short-term volatility. This prevents large, erratic price swings on a single exchange from triggering unnecessary liquidations, protecting traders from abnormal market conditions.
How Mark Price Is Used in Practice
The mark price is fundamental for calculating the health of your leveraged positions.
For Crypto-Margined Futures:
- Long Position PnL = Face Value |Number of Contracts| Multiplier * (1 / Average Entry Price - 1 / Mark Price)
- Short Position PnL = Face Value |Number of Contracts| Multiplier * (1 / Mark Price - 1 / Average Entry Price)
For USDT-Margined Futures:
- Long Position PnL = Face Value |Number of Contracts| Multiplier * (Mark Price - Average Entry Price)
- Short Position PnL = Face Value |Number of Contracts| Multiplier * (Average Entry Price - Mark Price)
👉 Explore real-time mark price tools
Why These Price Differences Matter
Understanding the distinction between these prices is crucial for risk management. Your trading interface may show a profit based on the last traded price, but if the mark price is significantly lower, your position could be liquidated. Exsystems use the mark price, not the last traded price, to calculate equity and trigger margin calls.
This system ensures a fairer trading environment. It prevents "liquidation hunting," where large players could artificially manipulate the price on one exchange to force liquidations elsewhere. By relying on a composite index and a smoothed mark price, the system protects traders from malicious or erratic price actions.
Frequently Asked Questions
What is the main difference between the last traded price and the mark price?
The last traded price is the immediate spot price on one exchange. The mark price is a calculated value based on a global index and a moving average, designed specifically to determine your unrealized profit and loss and to prevent unnecessary liquidations due to short-term volatility.
Why does my unrealized PnL differ from what I expect based on the current price?
Your unrealized PnL is calculated using the mark price, not the last traded price you see on the chart. If there is a significant difference between the mark price and the last traded price on your exchange, your displayed PnL will reflect that. Always check the current mark price for an accurate assessment of your position's health.
How often is the index price updated?
The update frequency for an index price varies depending on the platform and the specific asset. However, reputable exchanges continuously poll data from their selected venues to update their index prices in near real-time, often every second or even more frequently.
Can a single exchange's crash affect the index price?
Robust index price systems have built-in protections. If one exchange goes offline or provides erratic data, its input is excluded from the calculation. The index then relies on data from the remaining exchanges, ensuring continuity and stability.
Where can I view the current index and mark price for an asset?
Most major derivatives exchanges display the current index and mark price alongside the last traded price on their trading interface, typically within the chart or order book section. 👉 Get advanced trading methods and data
Is the mark price only used for liquidation?
While its primary function is to calculate equity for liquidation purposes, the mark price is also used to display your accurate unrealized PnL. This gives you a clearer picture of your position's value based on a fair market price rather than a potentially manipulated spot price.
In summary, mastering the concepts of last traded, index, and mark prices is fundamental for any serious cryptocurrency trader. This knowledge empowers you to better understand your positions, manage risk, and navigate the markets with greater confidence.