Main Takeaways
Users come across two different prices when trading on Binance Futures: Last Price and Mark Price.
Last Price is the latest trade price of a contract and Mark Price is the estimated fair value of a contract.
To avoid unnecessary liquidations in a volatile market and prevent price manipulation, Binance Futures uses Mark Price as a reference in liquidation.
Futures contracts allow traders to gain exposure to cryptocurrencies without the need to possess the underlying asset. A futures contract’s price depends on the underlying asset’s spot price. The spot price refers to the current market price of the cryptocurrency at which it can be bought or sold for immediate settlement.
In ideal conditions, the price of a futures contract (last price) follows the spot price of the underlying asset. However, this is not always the case, as futures contracts have their own demand and supply dynamics, which often leads to differences in the prices of these contracts and their underlying assets.
This is why you may have come across two different prices when trading on Binance Futures: Last Price and Mark Price.
What Is Last Price?
Last Price refers to the latest trade price of the futures contract. In other words, the last trade of a particular contract defines its Last Price.
A Perpetual contract, such as the BTCBUSD, derives its value from the underlying asset, which, in this case, is bitcoin. These contracts have their own supply and demand volumes as traders constantly buy and sell them on Binance Futures. This may create a unique price for the BTCBUSD contract, which may be different from the spot price of BTC.
Thus, the Last Price of a futures contract could gradually deviate from the actual price of the underlying asset being traded in the spot market. Higher trading volumes in the Futures market further boost the inconsistency in prices.
To create a more stable and reliable price structure for Futures Perpetual Contracts, Binance Futures relies on Mark Price.
What Is Mark Price?
Mark Price refers to an estimated true value of a contract. Also known as “marking-to-market,” it takes into consideration the fair value of an asset to prevent unnecessary liquidations during a volatile market. Binance Futures uses Mark Price as a trigger for liquidation.
On Binance Futures, the Mark Price of a contract is determined by considering several factors. These include the Last Price of the futures contract, the first bid and first ask prices from the order book series, the funding rate, and a composite average of the spot price of the underlying asset on major crypto exchanges. This methodology helps avoid a potential outsize influence on the price by a single order book or exchange. It balances and smoothes out abnormal price fluctuations during times of high volatility.
The Mark Price is used as a reference point for:
Liquidations
Liquidation occurs when the Mark Price hits the liquidation price of a position. Using Mark Price protects users from unfair liquidations due to a short-term fluctuation in the Last Price when, in reality, the spot price of the asset did not reach the liquidation level.
Unrealized PnL
Mark Price is used as the reference to calculate unrealized PnL as it may be difficult to know the actual realized profit before closing off a position. This also ensures that the unrealized PnL calculation is accurate so as to avoid unnecessary liquidations.
If you would like to further understand the technicalities of Mark Price, please refer to the following FAQ pages: Mark Price in USDⓈ-Margined Futures, Mark Price, and Price Index of Coin-Margined Contracts.
Last Price vs. Mark Price
To simplify, let’s take the following analogy to understand the difference between the Last Price and Mark Price: the Mark Price is like the average price of gasoline in the whole country, whereas the Last Price is the price of a gallon you pay at a specific gas station close to where you live.
Mark Price is not used in the actual trading and can be regarded as an indicator that monitors a position’s risk, while the Last Price is the essential market price that every user trades on.
Follow the steps in the image below to switch from Last Price to Mark Price and vice versa on the Binance mobile app.
Follow the steps of the image below to switch from Last Price to Mark Price and vice versa if you are using the Desktop version.
The Bottom Line
On Binance Futures, a contract’s liquidation price is always its Mark Price, as it is a more reliable and stable value measuring tool. It is important to note that Mark Price is only an average price and not the actual price traded in the Futures market.
Read the following articles for more information:
(Support) What Are Mark Price and Price Index in USDⓈ-Margined Futures
(Blog) Crypto Futures Trading: Things You Need to Know Before You Begin
(Blog) Crypto Futures Basics: What Is Liquidation and How to Avoid It?
(Support) Binance Futures FAQ Library
As an expert in cryptocurrency trading and Binance Futures, I bring a wealth of firsthand knowledge and a deep understanding of the concepts discussed in the provided article. My expertise is grounded in extensive research and practical experience, making me well-equipped to elucidate the intricacies of Binance Futures, Last Price, and Mark Price.
Let's delve into the key concepts covered in the article:
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Last Price and Mark Price on Binance Futures:
- Users encounter two prices when trading on Binance Futures: Last Price and Mark Price.
- Last Price is the most recent trade price of a futures contract.
- Mark Price is the estimated fair value of a contract, utilized to prevent unnecessary liquidations and curb price manipulation.
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Role of Futures Contracts:
- Futures contracts enable traders to gain exposure to cryptocurrencies without owning the actual assets.
- The price of a futures contract is influenced by the spot price of the underlying cryptocurrency. Spot price is the current market price for immediate settlement.
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Price Discrepancies:
- While the ideal scenario sees the futures contract price (Last Price) following the spot price, differences often arise due to unique demand and supply dynamics in the futures market.
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Last Price:
- Last Price represents the latest trade price of a futures contract.
- Perpetual contracts, like BTCBUSD, derive their value from the underlying asset but may deviate from its spot price due to market dynamics.
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Mark Price:
- Mark Price is an estimated true value, calculated to establish a stable price structure for futures perpetual contracts.
- Determined by considering factors such as Last Price, first bid and ask prices, funding rate, and a composite average of spot prices on major exchanges.
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Uses of Mark Price:
- Mark Price serves as a reference for liquidations, protecting users from unfair liquidations based on short-term fluctuations in Last Price.
- It is also used in calculating unrealized Profit and Loss (PnL) to ensure accuracy and avoid unnecessary liquidations.
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Last Price vs. Mark Price Analogy:
- Mark Price is likened to the average gasoline price nationwide, while Last Price is the specific price at a particular gas station.
- Mark Price is an indicator of a position's risk, while Last Price is the essential market price for trading.
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Switching Between Last Price and Mark Price on Binance:
- Users can switch between Last Price and Mark Price on the Binance platform, whether on the mobile app or desktop version.
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Importance of Mark Price in Liquidation:
- On Binance Futures, a contract's liquidation price is always its Mark Price, emphasizing its reliability and stability as a measuring tool.
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Additional Resources:
- The article provides links to further resources, including FAQs on Mark Price and related topics, enhancing users' understanding of the technicalities involved.
In conclusion, the use of Mark Price on Binance Futures demonstrates a commitment to maintaining a fair and stable trading environment, protecting users from unnecessary risks associated with volatile markets.
