Understanding Mark Price

Published on Feb 20, 2020
Updated on Apr 25, 2024

understanding mark price

The financial world is rapidly evolving with the advent of digital assets, and traditional trading methods are being challenged. With the rise of margin trading, it's becoming increasingly important for traders to have a stable and reliable reference point when making investment decisions. Enter the mark price, a price that offers a more accurate reflection of the true value of a derivative and helps traders avoid unexpected forced liquidations.

Mark Price Formula

Mark price = Spot index price + EMA (basis); or = Spot index price + EMA [(spot best bid + spot best ask) / 2 – spot index price]

What is Mark Price?

Mark price is a reference price that is calculated from the underlying index of a derivative. This index is often calculated as a weighted average of the spot price of an asset across multiple exchanges. The aim of this calculation is to avoid price manipulation on a single exchange and provide a more accurate representation of the value of the asset. The mark price takes into account both the spot index price and the moving average of the basis. This moving average mechanism helps to smooth out any abnormal price fluctuations and reduce the chance of forced liquidations.

Mark Price Calculation

Mark price is calculated as the spot index price plus the exponential moving average (EMA) of the basis. Alternatively, it can be calculated as the spot index price plus the EMA of the average between the spot best bid and ask prices minus the spot index price. The mark price is more independent than the last traded price and can provide traders with a more reliable reference point when making trading decisions.

The Difference between Mark Price and Last Trade Price

The mark price and last trade price can provide traders with valuable information about their positions. The difference between the two prices can be used to make informed trading decisions. For example, if the last trade price goes down but the mark price stays the same, your position will not trigger a forced liquidation. However, if the mark price crosses the threshold for a margin call, you might be in for a surprise.

OKX Launches Mark Price for Margin Trading

To protect its users' interests and eliminate malicious trading activities, OKX has launched its mark price system for margin trading. After the launch of the mark price system, OKX will use the mark price instead of the last traded price to calculate users' margin ratios. This can effectively prevent users from being forced-liquidated when the last traded price is manipulated within a short period of time. The estimated forced-liquidation price will also be adjusted based on the mark price. When the mark price reaches the estimated forced-liquidation price, full or partial liquidation will be triggered.

The Advantages of Mark Price

Mark price offers numerous benefits to traders in the digital asset world. By providing a more stable and reliable reference point, traders can avoid unexpected forced liquidations and make informed investment decisions. The mark price also helps to prevent malicious trading activities and protects the interests of traders. Furthermore, the mark price system can provide an accurate representation of the value of a derivative, even in a highly volatile market.

Conclusion

In the rapidly evolving world of digital assets, traders need a stable and reliable reference point to make informed investment decisions. Mark price provides this reference point, by taking into account the underlying index and the moving average of the basis. OKX's launch of the mark price system for margin trading offers numerous benefits to traders, including the protection of their interests, the avoidance of forced liquidations, and the provision of an accurate representation of the value of a derivative. If you're looking to trade digital assets, the mark price is a valuable tool that you can use to help make informed decisions and achieve your investment goals.

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