Main points
Users will encounter two different prices when trading on Binance Futures: the latest price and the marked price.
Latest price refers to the last traded price of the contract, while mark price refers to the estimated fair value of the contract.
In order to avoid unnecessary forced liquidation during market fluctuations and prevent price manipulation, Binance Futures uses the mark price as a reference when liquidating positions.
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, which is the price at which a cryptocurrency is purchased or sold for immediate settlement.
Ideally, the price of a futures contract (the latest price) follows the spot price of the underlying asset. However, this is not always the case because futures contracts have their own supply and demand dynamics that often cause the price of the contract and its underlying asset to diverge.
This is why you may encounter two different prices when trading on Binance Futures: the latest price and the mark price.
What is the latest price?
The latest price refers to the latest transaction price of the futures contract. In other words, the last trade on 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, which may differ from the spot price of BTC.
In this way, the latest price of a futures contract may gradually deviate from the actual price of the underlying asset traded in the spot market. When trading volume increases in the contract market, it will further exacerbate price inconsistencies.
In order to establish a more stable and reliable price structure for futures perpetual contracts, Binance Futures relies on marked prices.
What is a marked price?
Mark price refers to the estimated fair value of the contract. Mark-to-market, also known as mark-to-market, takes into account the fair value of an asset to prevent unnecessary liquidations in times of market volatility. Binance Futures uses the mark price as a condition to trigger liquidation.
Binance Futures calculates a contract’s mark price using the average of the contract’s latest price and the underlying asset’s spot price to avoid price manipulation by a single order book or trading platform. This balances out and smooths out unusual price swings during periods of high volatility.
The marked price is the reference point for:
Forced liquidation
Forced liquidation occurs when the mark price reaches the liquidation price of the position. When the asset's spot price does not reach the forced liquidation level in actual operations, the mark price is used to protect users from unfair forced liquidation caused by the latest short-term price fluctuations.
unrealized profit or loss
Because it may be difficult to know actual realized profits before closing a position, the mark price is used as a reference for calculating unrealized P&L. This also ensures that unrealized profit and loss calculations are accurate, thus avoiding unnecessary forced liquidations.
If you would like to know more about the technical details of mark prices, please refer to the following FAQ pages: Mark Prices for U-margined Contracts, Mark Prices, and Price Indexes for Coin-margined Contracts.
Latest price vs. marked price
In a nutshell, 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 at a specific station near where you live.
The mark price is not used in actual transactions, it can be used as an indicator to monitor position risk, and the latest price is the basic market price for each user's transaction.
Conclusion
The contract liquidation price of Binance Futures is always the marked price of the contract, because this price is a more reliable and stable value measurement tool. It should be noted that the marked price is only the average price and not the actual price of the contract market transaction.
Please read the following guide articles to learn more:
(Blog) Cryptocurrency Contract Trading: A Beginner’s Guide to Trading
(Blog) Cryptocurrency Contract Basics: What is a Liquidation and How to Avoid It?
(Support Article) Binance Futures FAQ Database
