What Is Mark Price?
Mark price is a fair price estimate used by derivatives exchanges to calculate unrealized P&L and trigger liquidations. Instead of using the last traded price (which can be manipulated by a single large trade), mark price typically combines the spot index price with a moving average of the funding basis to create a more stable, manipulation-resistant reference.
How Mark Price Works
The formula varies by exchange but generally: Mark Price = Spot Index Price + Exponential Moving Average of (Futures Price - Spot Index Price). This prevents "scam wicks" — brief, extreme price deviations on the derivatives market — from causing mass liquidations. Your unrealized P&L fluctuates with the mark price, but liquidation only triggers when the mark price hits your liquidation level.
Why It Matters for Traders
Understanding mark price is essential for managing leveraged positions. A large deviation between the last traded price and the mark price suggests the futures market is dislocated from the index — either a temporary inefficiency or a manipulation attempt. Always check whether your exchange uses mark price or last price for liquidation calculations, as this directly affects your effective liquidation level.