Mark Price vs Index Price and the Funding Rate Explained
A perpetual contract has several “prices”: the last traded price, the mark price and the index price. Each has its own role, and mixing them up leads to bad decisions, especially when it comes to liquidation.
The three prices
- Last price: the price of the most recent trade on that exchange’s own contract.
- Index price: an average of the coin’s prices across several spot exchanges, used as a “fair price” reference.
- Mark price: calculated from the index plus an adjustment that depends on the contract. It is used to compute unrealized profit and loss and, on most exchanges, liquidation.
The mark price exists to prevent manipulation: if someone pushes the last price around for a few seconds, the mark price, anchored to the index, tends to be steadier, so liquidation is not triggered by an artificial move.
How the funding rate uses these prices
The funding rate usually reflects the gap between the perpetual price and the index price. When the perpetual trades above the index, funding tends to be positive. When it trades below, funding tends to be negative. This is the mechanism that keeps the contract aligned with the coin. See what the funding rate is.
Every exchange has its own formula. In general it combines a base interest rate with a premium for the difference between the contract and the index, and applies a minimum and a maximum cap.
Why this matters for liquidation
Most exchanges liquidate your position when the mark price touches the liquidation price, not the last price. That means looking only at the contract chart can be misleading: the mark price may sit slightly away from it.
In arbitrage trades this difference matters, because the two legs are on exchanges with different mark prices. See how to calculate the liquidation price and how to avoid liquidation.
What to watch in practice
- Check which price the exchange uses for liquidation (usually the mark price).
- Compare the mark price with the last price before entering a volatile coin.
- When setting stops, choose the mark price as the trigger whenever possible, to avoid being stopped out by brief spikes.
- Be wary of large gaps between the contract and the index, since they point to stress in the market.
Multi Arbitrage sets the exchange-side insurance stops by mark price, and the protection tracks the distance from each leg to liquidation.
Example of the difference between the prices
The coin’s index is at $50.00. The perpetual contract is trading at $50.40 (a 0.8% premium). The mark price, calculated from the index, is at $50.05. Your position is marked to market by the mark price, not the last price. If the last price briefly spikes to $51, that alone does not trigger liquidation.
What to check on the exchange
Look in the contract documentation for how the mark price is calculated and which price is used for liquidation. Some exchanges let you choose the stop trigger price between the last price and the mark price. For protection, the mark price is usually more robust.
Related guide: what the funding rate is. See also all the crypto arbitrage guides.
Frequently asked questions
Which price liquidates the position?
On most exchanges, the mark price. Check the rule of the exchange you use.
Is the index price the same as the coin’s price?
It is an average of the coin’s spot prices across several exchanges, used as a reference. It can differ slightly from the price on one specific exchange.
Can the mark price diverge a lot from the last price?
In times of stress, it can diverge quite a bit. That is why your distance to liquidation should have some slack.
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This content is for information only and is not investment advice. Trading crypto derivatives involves a high risk, including the total loss of your capital. Past results do not guarantee future results, and the figures mentioned are examples. Before trading, check whether trading crypto derivatives is allowed in your country and what your tax obligations are. Assess whether the product suits your profile before investing.