When trading cryptocurrency derivatives on a trading platform, index price, mark price, and last price are fundamental and highly important concepts. Let’s explore what these terms mean and their roles in investment decisions.
Why Do We Need Index Price, Mark Price, and Last Price?
Spot market trading is essentially the exchange of a specific quantity of one asset for another. However, in derivatives trading, such as futures contracts, you do not necessarily own the actual asset, but instead trade contracts related to that asset. As a result, derivatives contracts rely on spot price data to facilitate long and short trades. This is where index price, mark price, and last price come into play.
• Risk Control: The use of mark price and index price helps reduce the risk of unexpected liquidations due to market volatility.
• Fair Trading: Index price and mark price ensure fairness in contract trading and prevent price manipulation.
• Trading Decisions: Last price provides traders with real-time market information, helping them make more precise trading decisions.
Differences and Characteristics of the Three Prices
| Price Type | Definition | Function | Characteristics |
| Index Price | Weighted average price from multiple spot markets | Reflects the fair market price, used as a basis for liquidation | Fair and stable, avoids the impact of single market fluctuations |
| Mark Price | Calculated based on index price and funding rate | Used for unrealized PnL calculation and liquidation mechanism | Reduces short-term volatility impact, protects traders |
| Last Price | The price of the most recent transaction | Reflects real-time market trading activity | More volatile, suitable for short-term trading reference |
What Is Index Price?
Index price trading, or simply index price, refers to the average spot price of a cryptocurrency across multiple major exchanges. Since the price of a particular cryptocurrency may vary between different exchanges, the index price is calculated based only on major exchanges’ data.
Index Price Calculation Formula
Index Price = (Spot Price on Exchange A × Exchange A’s Weight) + (Spot Price on Exchange B × Exchange B’s Weight) + …
Exchanges with higher trading volumes have greater weight in calculation.This means that exchanges with larger trading volumes have a stronger influence on the index price.
The purpose of the index price is to provide a fair and accurate benchmark price for derivatives trading. It is used to calculate contract prices, perpetual contracts, and funding rates. In other words, the index price ensures that derivative contracts settle at a fair value.
What Is Mark Price?
Mark price is a crucial factor in derivatives trading, and it is used to:
• Calculate unrealized profit and loss (PnL) in leveraged trading.
• Trigger forced liquidation, ensuring fair trading and preventing market manipulation.
Two Key Points to Remember About Mark Price
1. Mark price is used to measure unrealized PnL but does not affect actual PnL.
2. A position will only be liquidated when the mark price equals the liquidation price.
Mark price is generally the midpoint price of the order book, but it is linked to the index price to ensure fairness and prevent significant deviations from spot prices. This means that mark price is influenced by the spot prices on major exchanges.
However, the calculation formulas for mark price may differ for different derivatives. Since explaining these formulas in this introductory article would be overly complex, we will focus only on the basic concept of mark price.
Moving Average Basis in Mark Price
In addition to index price, mark price considers a “moving average basis”, which continuously updates the average price of a token over a certain period. This helps provide a reasonable price and prevents unnecessary forced liquidation during extreme market fluctuations.
Important Reminder: Mark price is a critical factor in leverage calculations, PnL calculations, and liquidation mechanisms.
What Is Last Price?
• Mark price is used only to calculate unrealized PnL.
• Last price is used to determine realized PnL.
For example, the perpetual contract BTCUSDT is influenced by its underlying asset, Bitcoin. Since traders frequently buy and sell contracts in the HedgerX contract market, the contract price may differ from the BTC spot market price.
Why Does Last Price Differ from Spot Price?
The last price of a contract may deviate from the BTC spot market price due to differences in market participants and trading activity. Additionally, as the trading volume of the contract market increases, this price deviation may widen further.
To maintain stable perpetual contract prices, HedgerX relies on “mark price” to manage market fluctuations.
Why Is Understanding These Concepts Important?
In contract trading, understanding index price, mark price, and last price is essential. These three prices are not only the core basis for trading decisions, but they also directly impact:
✅ Margin calculations
✅ Unrealized profit and loss calculations
✅ Liquidation mechanisms