What is mark price?

The reference price an exchange uses to value open derivatives positions and trigger liquidations, calculated from outside spot markets rather than from its own order book.

You see the mark on any derivatives screen, usually printed beside the last traded price and often a few dollars away from it. Traders meet it for the first time when a position is closed out at a price that never appeared on the chart they were watching, which is the point of the mechanism rather than a fault in it.

Using the last traded price to trigger liquidations would let a single large order on a thin book push other traders out of their positions. Building the reference from an index of outside markets makes that attack expensive, because moving the mark means moving several exchanges at once.

How it works

A venue publishes its own mark price formula. The common construction has two parts. The first is an index price, a median or weighted average of the spot price on several large external exchanges, so that one venue's outage or fat-finger print cannot drag it. The second is an adjustment for the fair basis, the normal gap between a derivative and spot, which is often smoothed from the moving average of the difference between the contract's mid price and the index.

Everything that matters to a leveraged account is measured against the mark rather than the last trade: unrealized profit and loss, the margin ratio, and the price at which the risk engine closes the position. Funding payments on a perpetual are also calculated from the gap between the contract and the index.

The consequence is that your position can be liquidated while the exchange's own chart still shows a higher price, and it can survive a brief wick down that the index never followed. Read the venue's published formula before sizing a leveraged position, since the choice of constituent exchanges and the smoothing window differ.

Example

Illustrative figures. You hold a long perpetual position with a liquidation level at $60,000. A large sell order on this exchange alone prints trades down to $59,400, and the last-price chart shows a sharp wick. Meanwhile the index built from four external spot venues never falls below $60,350, so the mark stays above $60,000 and your position is untouched.

Reverse the case and the lesson is the same. If those four external venues do fall to $59,900 while your exchange's book lags at $60,300, the mark crosses your level and the engine closes the position even though the chart on screen never printed there.

Why it matters when you buy

If you only buy spot, the mark price never touches you: your fill is the price you actually traded. It matters the moment you use any leveraged product, because it decides where your position ends. It is also a reminder that a price on a single venue is not the market price. The measured spread and depth figures on the liquidity pages show how far one venue's book can drift from the wider market before anyone arbitrages it away.

Related terms

• index price — the external spot average underneath
• liquidation — the event the mark triggers
• leverage — why small mark moves matter
• perpetuals — the contract type that uses it
• funding rate — priced off the same index gap
• basis — the gap the mark adjusts for

Questions

Why is the mark price different from the last traded price?

Because they measure different things. The last trade is what happened on this venue, the mark is what the wider market says the contract is worth. A gap between them is normal and usually small.

Can an exchange change its mark price formula?

Yes, and venues do adjust the constituent exchanges and the smoothing when a source becomes unreliable. Changes are published in exchange notices, which is one reason to read them before holding leveraged positions.

Does the mark price affect spot trading?

No. Spot fills happen at the order book price. The mark exists for valuing and closing derivatives positions.