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Understanding Mark Price
What is mark price
Mark price is a reference price of a derivative that is calculated from underlying index, often calculated as a weighted index spot price of an asset across multiple exchanges, so as to avoid price manipulation of a single exchange.
Mark price takes into account the moving averages of both spot index price and basis. The moving average mechanism can smooth out abnormal price fluctuation within a short period of time to reduce the chance of forced-liquidation. For example, if the last trade price goes down but mark price stays the same, your position will not trigger the forced-liquidation engine. However, if mark price crosses the threshold for margin call, you might be in for a surprise.
TL;DL? Mark price = Spot index price + EMA (basis); or = Spot index price + EMA [(spot best bid + spot best ask) / 2 - spot index price]
You can use the difference between mark price & last trade price to make a trading decision. Mark price can protect your positions from being forced-liquidated as it is generally in traders’ flavour, it is more independent than the last traded price.
OKEx launches mark price for margin trading
In order to protect users' interest and eliminate malicious trading activities, we have launched the mark price system for margin trading.
After the mark price system is launched, we will use the mark price to replace the last traded price to calculate users’ margin ratio. This can effectively avoid users from being forced-liquidated when the last traded price is maliciously manipulated within a short period of time. The estimated forced-liquidation price will be adjusted too. When the mark price (instead of the last traded price) has reached the estimate forced-liquidation price, forced or partial liquation will be triggered.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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