Mark Price is a measure of the current estimated fair value of a Binance Futures contract. It is calculated using a variety of factors, including the last price of the contract, the funding rate, and a composite average of the spot price of the underlying asset on major crypto exchanges.
Why is Mark Price Important?
Mark Price is important for a number of reasons. First, it is used to calculate unrealized profit and loss (PNL). This is the difference between the current market price of a contract and the price at which it was opened. Unrealized PNL is important because it can be used to determine whether a trader is making or losing money on a trade.
Second, Mark Price is used to calculate liquidation prices. Liquidation occurs when a trader’s margin balance falls below a certain threshold. When this happens, the trader’s position is automatically closed and they lose any funds that are below the liquidation price. Mark Price is used to calculate liquidation prices because it provides a more accurate measure of the current value of a contract than the last price.
Third, Mark Price is used to calculate funding rates. Funding rates are paid or received by traders who hold open positions in Binance Futures contracts. The funding rate is calculated based on the difference between the Mark Price and the spot price of the underlying asset. Funding rates are designed to help keep the Mark Price close to the spot price.
How is Mark Price Calculated?
Mark Price is calculated using the following formula:
Mark Price = (Last Price * Weight of Last Price) + (Funding Rate * Weight of Funding Rate) + (Spot Price * Weight of Spot Price)
The weights used in the formula are determined by Binance and are based on a number of factors, including the liquidity of the underlying asset and the volatility of the market.
What is the Difference Between Mark Price and Last Price?
The Last Price is the most recent price at which a contract was traded. The Mark Price is an estimate of the current fair value of a contract. The two prices are not always the same, especially during periods of high volatility. This is because the Last Price can be affected by factors such as market psychology and order book imbalances, while the Mark Price is based on a more fundamental analysis of the market.
What are the Benefits of Using Mark Price?
There are a number of benefits to using Mark Price. First, it provides a more accurate measure of the current value of a contract than the Last Price. This is important for traders who need to track their unrealized PNL and for traders who are at risk of liquidation. Second, Mark Price helps to prevent market manipulation. By using a formula that is based on a variety of factors, Binance makes it more difficult for traders to artificially inflate or deflate the price of a contract.
What are the Drawbacks of Using Mark Price?
There are a few drawbacks to using Mark Price. First, it can be more difficult to understand than the Last Price. This is because the Mark Price is based on a number of factors, some of which may not be immediately obvious to traders. Second, Mark Price can be less responsive to changes in the market than the Last Price. This is because the Mark Price is calculated using a rolling average of the spot price, which can lag behind the current market price.
Conclusion
Mark Price is an important tool for traders who use Binance Futures. It provides a more accurate measure of the current value of a contract than the Last Price and helps to prevent market manipulation. However, it is important to understand the limitations of Mark Price and to use it in conjunction with other tools, such as the Last Price, to make informed trading decisions.
