Key takeaways
Users will encounter two different prices when trading on Binance Futures: the latest price and the marked price.
The latest price is the last traded price of the contract, and the mark price is the estimated fair value of the contract.
To avoid unnecessary forced liquidations in volatile markets and prevent price manipulation, Binance Futures uses mark prices as a reference for forced liquidations.
Futures contracts allow traders to take a position in a cryptocurrency 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 at which it can be bought and sold with immediate delivery.
In an ideal world, a futures contract (latest price) would track 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 result in differences in the prices of the contract and its underlying asset.
This is why you will encounter two different prices when trading on Binance Futures: the latest price and the marked price.
What is the latest price?
The latest price refers to the latest trading price of the futures contract. In other words, the most recent trade for a particular contract defines its most recent price.
The value of a perpetual contract such as BTCBUSD is derived from its underlying asset, which in this case is Bitcoin. These contracts have their own supply and demand, as traders are constantly buying and selling contracts on Binance Futures. This could create a unique price for the BTCBUSD contract, causing its price to differ from the spot price of BTC.
Therefore, the latest price of a futures contract will gradually deviate from the true price of the underlying asset in the spot market. Higher trading volumes in the contract market further amplify this price inconsistency.
In order to establish a more stable and reliable price structure for futures perpetual contracts, Binance Futures relies on mark prices to achieve its goals.
What is a marked price?
The mark price refers to the estimated true value of the contract. Also known as "marked-to-market," it considers an asset's fair value to avoid unnecessary liquidations during periods of severe market volatility. Binance Futures uses the mark price as a trigger for liquidation.
On Binance Futures, a contract’s mark price is calculated as the average of its latest price and the spot price of the underlying asset, preventing price manipulation from a single order book or a single exchange. This balances and smoothes out abnormal price movements that occur during periods of high volatility.
The marked price serves as a reference price for the following events:
Forced liquidation
Forced liquidation occurs when the mark price hits the position's forced liquidation. Using a mark price protects users from unfair liquidation due to short-term fluctuations in the latest price, when the spot price of the asset may not actually have reached the liquidation level.
Unrealized gains and losses
The mark price is used as a reference price for unrealized profits and losses because it may be difficult to know the actual realized profits and losses before closing the position. . This ensures that the calculation of unrealized profits and losses is precise enough to avoid unnecessary forced liquidations.
If you would like to know more about the technical details of mark prices, you can refer to the following FAQ pages: Mark Prices in U-margined Contracts, Mark Prices and Price Indexes in Coin-margined Contracts.
Latest price vs marked price
To put it simply, we use the following analogy to understand the difference between the latest price and the marked price: the marked price is like the average price of gasoline across the country, while the latest price is the price you pay at a specific gas station close to where you live. The price paid per gallon.
The mark price is not used in actual trading and can be regarded as an indicator to monitor the risk of the position, while the latest price is the basic market price that every user will use to trade.
Key conclusions
On Binance Futures, the liquidation price of a contract is always based on the mark price as it is a more reliable and stable measure of value. It is worth mentioning that the marked price is only an average price, not the real price actually traded in the contract market.
