Crypto Mark Price: Calculation, Liquidations, and Risk Management
Summary
The document explains mark price as a reference value for a derivative based on a spot index and a smoothed measure of the contract basis. It gives two calculation forms: adding an exponential moving average of the basis to the spot index, or using the average of spot best bid and ask relative to that index. The smoothing is intended to reduce the influence of brief price distortions on a single venue. Mark price therefore differs from last trade price, which reflects the most recent transaction.
Exchanges may use mark price to calculate margin ratios and trigger liquidations, while traders can use it to estimate liquidation levels and inform stop-loss placement. The article cautions that mark price can still move quickly in volatile conditions and should not replace other risk controls. Exchange implementations may vary, and a mark-price-based stop does not guarantee an exit before liquidation, especially if execution is delayed or prices gap.
Key ideas
- Mark price combines a spot index with an exponentially smoothed basis measure.
- Using an index across venues can reduce the effect of an isolated exchange price distortion.
- Some exchanges use mark price rather than the latest trade to assess margin and trigger liquidation.
- Traders can compare mark price with last trade price when planning liquidation levels and stops.
- Mark price does not eliminate liquidation risk, particularly during fast markets or delayed execution.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.