What Is Mark Price? Fair Value Pricing in Perps Explained
Mark price is a reference price used by perpetual futures exchanges to calculate unrealized PnL and determine when a position should be liquidated. Instead of relying on the last traded price on a single exchange, the mark price is derived from the broader spot market through the index price, combined with a funding basis component. This design prevents artificial price spikes or thin-orderbook wicks from unfairly liquidating traders.
Why Mark Price Exists
In any single exchange's order book, the last traded price can be temporarily pushed to extreme levels by a large market order, a flash crash, or a deliberate manipulation attempt. If liquidations were triggered based purely on the last traded price, a single whale could:
- Place a massive sell order, crashing the price momentarily.
- Trigger a cascade of long liquidations.
- Buy back at the artificially low price, profiting from the liquidation cascade.
Mark price solves this by tying liquidation calculations to a manipulation-resistant reference that reflects the true market value of the underlying asset across multiple venues.
How Mark Price Is Calculated
The general formula for mark price is:
Mark Price = Index Price + Decaying Funding Basis
Where:
- Index Price: A weighted average of the asset's spot price across several major exchanges (Binance, Coinbase, Kraken, etc.)
- Decaying Funding Basis: The premium or discount of the perp contract relative to spot, which gradually decays toward zero between funding rate intervals
In practice, for most market conditions, mark price stays very close to the index price. The funding basis component only creates a meaningful difference when the perpetual contract is trading at a significant premium or discount to spot.
Mark Price vs Last Traded Price
Understanding the distinction is critical for reading your position information correctly:
| Attribute | Mark Price | Last Traded Price |
|---|---|---|
| Source | Index price + funding basis | Most recent trade on the exchange |
| Purpose | Unrealized PnL, liquidation triggers | Order execution, realized PnL |
| Manipulation resistance | High (multi-exchange average) | Low (single exchange) |
| Volatility | Smoothed | Can spike on large orders |
| Relevance to your open position | Determines if you get liquidated | Determines what price you actually trade at |
Practical Scenario
Imagine BTC is trading at 60,000 USDC across major spot exchanges, and the Perpmate BTC perpetual last traded at 60,200 USDC due to a sudden burst of buying pressure.
- Last Traded Price: 60,200 USDC
- Index Price: 60,000 USDC
- Mark Price: approximately 60,050 USDC (index + small funding basis)
If you have a short position, your unrealized PnL is calculated using the mark price (60,050), not the last traded price (60,200). This means your displayed loss is smaller and more accurate, and you are not at risk of liquidation from a momentary premium that will likely fade.
How Mark Price Affects Your Positions
Unrealized PnL
Your unrealized PnL updates in real time based on the mark price:
- Long position unrealized PnL = (Mark Price - Entry Price) x Position Size
- Short position unrealized PnL = (Entry Price - Mark Price) x Position Size
This means the profit or loss number you see on your open position reflects the fair market value, not necessarily the price you would get if you closed the position right now.
Liquidation Triggers
Liquidation engines use mark price exclusively. Your position is liquidated when:
Mark Price reaches your liquidation price
Even if the last traded price on the exchange briefly touches your liquidation level, you will not be liquidated unless the mark price also reaches that level. This protection is especially valuable during flash wicks where the order book price dips and recovers within seconds.
What Mark Price Does NOT Affect
- Order execution: When you place a limit or market order, it fills at the actual order book price, not the mark price.
- Realized PnL: When you close a position, your realized profit or loss is based on your execution price.
- Funding payments: Funding rate payments are calculated based on the difference between the perp price and the index price, not the mark price directly.
Practical Example on Perpmate
You open a 10x long on ETH at an entry price of 3,000 USDC with 500 USDC margin (5,000 USDC position size):
| Time | Last Traded Price | Mark Price | Unrealized PnL | Distance to Liquidation |
|---|---|---|---|---|
| Entry | 3,000 | 3,000 | 0 USDC | ~10% |
| Flash wick down | 2,800 | 2,920 | -133 USDC | ~7.3% |
| Recovery | 3,050 | 3,040 | +67 USDC | ~11.3% |
During the flash wick, the last traded price dropped to 2,800 (a 6.7% drop that would have nearly liquidated a 10x position). But the mark price only fell to 2,920 because the spot market across other exchanges remained stable. Your position survived because liquidation is based on mark price, not the momentary order book anomaly.
Tips for Traders
- Watch the mark price, not just the chart candles: Candle wicks reflect last traded prices. Your liquidation is based on mark price, which may never reach the wick extreme.
- Understand the spread: If the perp is trading at a significant premium or discount to the index, the mark price will differ from what you see on the trading chart.
- Do not panic on wicks: A flash crash on one exchange does not mean you are liquidated. Check the mark price before making reactive decisions.
- Factor mark price into your stop-loss strategy: Stop-loss orders typically trigger on last traded price or mark price depending on the exchange. On Perpmate, understand which trigger type your stop-loss (TL) uses.
Related Terms
- Index Price: The spot market average that anchors the mark price
- Liquidation Price: Triggered when mark price reaches a critical level
- PnL: Unrealized PnL is calculated from mark price
- Funding Rate: Related to the premium/discount that influences mark price
- Order Book: Where the last traded price is determined