Why is it important for traders to distinguish between the mark price and the last price

Risk management is the foundation of successful cryptocurrency trading, especially when working with margin instruments and derivatives. To effectively protect positions, traders must understand how the market evaluates assets and under what conditions liquidation occurs. A key role in this process is played by the marking price — a mechanism that protects against price manipulation and provides a more objective assessment of the derivative’s value.

Basics: What is the marking price and why is it needed

The marking price is a reference price of the asset calculated based on the average of spot prices across multiple trading platforms. This system addresses a key problem: if the margin ratio is calculated only based on the last trade price, traders risk unexpected liquidation due to local price spikes on a single exchange.

The marking price considers:

• The average spot price of the asset across different exchanges
• The Exponential Moving Average (EMA) of the (basis) — the difference between the spot and futures prices
• An amortizing effect that reduces the likelihood of forced liquidation during short-term volatility

Result: traders receive a more stable and reliable indicator, which is used to calculate the margin level of their position.

How the marking price calculation mechanism works

The marking price is calculated using the formula:

Marking Price = Spot Index Price + EMA (basis)

Where:

• Spot Index Price — the average price of the asset aggregated from multiple platforms
• EMA — exponential moving average that tracks changes in the basis over a specified period
• Basis — the difference between the current spot price and the futures price

An alternative formula: Marking Price = Spot Index Price + EMA [(best bid + best ask) / 2 – Spot Index Price]

The essence is that the last trade price and the marking price use different input data. If the last price depends on a single trade on one exchange, the marking price is an averaged indicator with a buffer against anomalies.

The difference between the last price and the marking price: a practical example

Imagine a scenario: the last trade price for BTC suddenly drops by 2% within a minute due to a large market order on one platform. If the margin ratio was calculated only based on the last price, traders with long positions would face a margin call and liquidation, even though the rest of the market remained unchanged.

In this case, the marking price falls more slowly because it incorporates data from all exchanges. This gives traders time to react without losing their position due to a temporary spike.

Key difference: the last price is instantaneous; the last price and the marking price differ in that the first is reactive, while the second is stable.

How exchanges use the marking price to protect traders

Some major trading platforms use the marking price system as the primary indicator for calculating the margin ratio in margin trading. This allows to:

• Exclude malicious trading activities and manipulations
• Calculate the precise liquidation level of a position
• Reduce the number of liquidations caused by technical price spikes

When the marking price reaches the level of forced liquidation, a full or partial liquidation is triggered. It is this price, not the last trade price, that acts as the trigger.

Practical application of the marking price in trading

Precise liquidation level calculation

When planning a position, use the marking price to determine the actual liquidation level. This allows to:

• Increase margin confidence
• Avoid liquidation due to short-term volatility spikes
• Plan position size based on actual market movements

Setting precise stop-loss orders

Instead of relying on the last price, set stop-loss slightly below the liquidation level based on the marking price (for long) or above (for short). This approach reduces the risk of being liquidated at the last moment.

Automatic position opening

Use limit orders at levels determined through the marking price to enter positions at optimal moments without constant monitoring. This is especially useful when trading based on technical analysis.

Risks and limitations of using the marking price

The marking price is a powerful tool, but not a panacea. Risks remain:

• During extreme market volatility, even the marking price can move faster than you can react
• Overreliance on this indicator may lead to ignoring other risk management tools
• The optimal strategy is to combine the marking price with other position management methods

Conclusion

For a trader taking on leverage, the difference between the last price and the marking price can literally save a position. The marking price provides a fairer and more stable valuation of the asset, protecting against manipulation and technical spikes. It does not mean liquidation is impossible, but it gives you more time and confidence in managing risks. Regularly using the marking price for calculating liquidation levels, stop-losses, and limit orders is a sign of disciplined trading, increasing the likelihood of long-term success in cryptocurrency trading.