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Definition fair priceindex pricemarking

Mark Price

The reference price a derivatives venue uses to value open positions and decide liquidations, drawn from several outside spot markets.

Rather than valuing positions at the last trade printed on its own book, a venue computes a mark price from an index of external spot venues, often adjusted by a component reflecting the contract's funding or basis. This makes it much harder for a single large order to trigger liquidations by pushing the venue's own price briefly away from the wider market. Unrealized profit and loss, margin calculations, and liquidation triggers all reference the mark price, which is why a trader can see a sharp wick on the chart without being liquidated. Each venue publishes its own index composition and update rules, so the same position can be marked slightly differently across venues.

In practice

A brief spike on one exchange's own order book may not affect positions there, because margin is calculated from an index of several outside spot markets instead.

The common misunderstanding

Positions are not liquidated because of the last trade printed on the venue; the mark price, averaged from outside markets, is what decides.

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Related terms

Cascade Liquidation A chain reaction in which forced closings push the price further, which then triggers more forced…
Derivatives Market Markets for contracts whose value comes from another asset's price, such as futures, perpetual…
Funding Rate A recurring payment between holders of long and short perpetual futures positions that keeps the…
Liquidation The forced closing of a leveraged position by an exchange or protocol when the collateral behind it…
Perpetual Future A derivative contract that tracks an asset's price with no expiry date, kept in line with spot by…
Spot Market The market where an asset is traded for immediate delivery and payment, rather than as a contract…
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