Users will encounter two different prices when trading on Binance Futures: the latest price and the mark price.
Last Price refers to the latest transaction price of the contract, while Mark Price refers to the contract’s estimated fair value.
In order to avoid unnecessary forced liquidation during market fluctuations and to prevent price manipulation, Binance Futures uses the mark price as a reference for forced liquidation.
Futures contracts allow traders to gain exposure to cryptocurrencies without owning the underlying asset. The price of a futures contract depends on the spot price of the underlying asset. Spot price refers to the current market price of a cryptocurrency, i.e. the price at which a cryptocurrency is bought or sold for instant settlement.
Ideally, the price of a futures contract (latest price) follows the spot price of the underlying asset. However, this is not always the case, as futures contracts have their own supply and demand dynamics that often lead to differences in the price of the contract and its underlying asset.
This is why you may encounter two different prices when trading on Binance Futures : the latest price and the mark price.
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What is the latest price?
The latest price refers to the latest transaction price of the futures contract. In other words, the last trade for a particular contract determines its latest price.
The price of a perpetual contract such as BTCBUSD is affected by its underlying asset, in this case Bitcoin. Because traders are constantly buying and selling on Binance Futures, such contracts have their own supply and demand. This may create a unique price for the BTCBUSD contract that may differ from the spot price of BTC.
In this way, the latest price of the futures contract may gradually deviate from the actual price of the underlying asset traded in the spot market. When the volume of the contract market increases, the price inconsistency will be further exacerbated.
In order to establish a more stable and reliable price structure for futures perpetual contracts, Binance Futures relies on mark prices.
What is a mark price?
The mark price refers to the estimated fair value of the contract. Mark price, also known as “mark-to-market”, takes into account the fair value of assets to prevent unnecessary forced liquidation when the market is turbulent. Binance Futures uses the mark price as a condition to trigger forced liquidation.
Binance Futures uses the average of the latest price of the contract and the spot price of the underlying asset to calculate the mark price of the contract to avoid price manipulation by individual order books or trading platforms. This balances out and smooths out unusual price swings during periods of high volatility.
The mark price is the reference point for:
Forced liquidation
A liquidation occurs when the mark price reaches the liquidation price of the position. When the spot price of the asset in actual operation does not reach the forced liquidation level, the mark price is used to protect users from the unfair forced liquidation caused by the short-term fluctuation of the latest price.
Unrealized profit and loss
Because it may be difficult to know the actual realized profit before closing the position, the mark price is used as a reference for calculating the unrealized profit and loss. This also ensures that the calculation of unrealized profit and loss is accurate, thereby avoiding unnecessary forced liquidation.
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Latest Price and List Price
In short, let’s use the following analogy to clarify the difference between the latest price and the marked price: If the marked price is the national average price of gasoline, then the latest price is the price per gallon of gas at a specific gas station near your residence.
The mark price is not used in the actual transaction, it can be used as an indicator to monitor the risk of the position, and the latest price is the basic market price of each user’s transaction.
Conclusion
The contract liquidation price of Binance Futures is always the mark price of the contract, because this price is a more reliable and stable value measurement tool. It should be noted that the mark price is only the average price, not the actual price of the contract market transaction.
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Please check Binance official website or contact the customer support with regard to the latest information and more accurate details.
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Please click "Introduction of Binance", if you want to know the details and the company information of Binance.
Comment by Hans
April 24, 2024
as I am trading here various assets, for me it's the most important feature. i mean, flexibility in tradable markets. i alternate trading styles, meaning that sometimes I trad...