What is Mark Price?
Mark price is a calculated fair value price used in derivatives trading to determine unrealized profit and loss, margin requirements, and liquidation thresholds. Unlike the last traded price, which can be volatile and potentially manipulated, mark price provides a more stable and manipulation-resistant reference for critical calculations.
Purpose of Mark Price
The primary purpose of mark price is to prevent unnecessary liquidations caused by temporary price wicks or manipulation of the last traded price. If liquidations were based solely on the most recent trade price, large market orders or thin order books could trigger cascading liquidations unfairly.
By using mark price for margin calculations, exchanges protect traders from manipulation and ensure liquidations only occur when positions are genuinely underwater based on fair market valuation.
Mark Price Calculation
Mark price typically incorporates the spot index price from multiple exchanges plus a basis adjustment. The spot index is often a weighted average of prices from several major spot exchanges, filtering out outliers.
The formula varies by platform but generally follows: Mark Price equals Index Price plus a Decaying Average of the difference between Perp Price and Index Price. This anchors mark price to spot reality while allowing some premium or discount to reflect perpetual market conditions.
Mark Price vs. Last Price
The last price is the most recent execution price on the platform. Mark price is the calculated fair value. Unrealized profit and loss shown on most platforms uses mark price, not last price. This distinction matters because your displayed profit and loss reflects fair value, but closing the position executes at actual market price.
During volatile conditions, mark price and last price can temporarily diverge. Understanding this difference helps explain why displayed profits might differ from realized amounts when closing positions.
Mark Price in DeFi Perpetuals
DeFi perpetual protocols implement mark price through oracle-based price feeds. Platforms like GMX use Chainlink oracles for index prices. DYdX uses a combination of on-chain and off-chain data. The specific implementation affects how responsive and manipulation-resistant the mark price is.