Marking Price vs. Last Trade: Why the Choice of Valuation Method Determines the Fate of Your Position

Anyone who has ever opened a margin position in cryptocurrencies has encountered a paradox: the price on the chart is falling, but you get liquidated earlier than expected. Or vice versa — it seemed like the bottom was broken, but the position miraculously survived. The key to understanding these situations lies in one question: at what price does the exchange determine your position? Is it based on the last trade price or on a more fair marking valuation?

Two approaches to determining value: what is the fundamental difference?

Last price — is simply the most recent amount at which an asset was bought or sold on that exchange. It can be distorted by manipulations, sudden jumps, or low liquidity at a given moment. Imagine: one trader sold a large volume, the price dropped by 5%, but this does not reflect the actual market valuation of the asset.

Marking price works differently. It is calculated as a weighted average based on quotes from several major platforms simultaneously. It’s not just an arithmetic mean, but a smart system that considers the spot index of the asset and the exponential moving average (EMA) of the difference between the bid and ask on the market.

In other words: the marking price is designed to protect against price manipulations. If one trader tries to crash the price on one platform, the marking system immediately neutralizes this by looking at the overall market situation.

How exactly is the marking price calculated?

The formula is not as scary as it seems:

Marking Price = Spot Index + EMA(Basis)

Or in a more detailed form:

Marking Price = Spot Index + EMA[(Best Bid + Best Ask)/2 – Spot Index]

Let’s break down the components:

• Spot Index — is the average price of the asset across several leading platforms. For example, for Bitcoin, prices from major exchanges are taken and a weighted average is calculated.

• EMA (exponential moving average) — a technical indicator that tracks price changes, giving more weight to recent data. It’s like a “breathing” average, not just a sum of all prices equally.

• Basis — the difference between the future price (on the futures market) and the current spot price. It shows how the market expects the price to change in the future.

• Best Bid — the highest price someone is willing to buy at right now.

• Best Ask — the lowest price someone is willing to sell at right now.

The system continuously recalculates these values, creating a “fair” estimate that cannot be subject to short-term manipulations.

Why is this critical for risk management?

Consider a practical scenario: you opened a long position of 10 Bitcoin with 5x leverage. The last BTC price was $43,000 when you entered. Now, a sharp drop occurs due to a large order.

Scenario 1: Calculation based on the last price

• Last trade: $41,500 (fell by 1,500)
• Your collateral decreases rapidly
• Liquidation can occur even if the rest of the market quotes BTC at $42,800

Scenario 2: Calculation based on the marking price

• Marking price: $42,700 (system considered prices on other exchanges)
• Your collateral falls much more slowly
• You have time to react, avoiding mechanical liquidation

Many professional exchanges (including major platforms) have switched to the marking system for margin trading precisely for this reason.

Applying the marking price in real trading

Precise calculation of liquidation levels

Instead of automatically using the last price as a reference for liquidation, use the marking price when planning your trade:

1. Determine your desired leverage level
2. Calculate the liquidation price based on the marking price, not the last price
3. Treat this level as the true risk boundary

This way, you get a more reliable indicator of where liquidation could actually occur, rather than where “a miracle might happen.”

Placing stop orders

Experienced traders set stop-loss orders not based on the last price, but referencing the marking price:

• For longs: stop-loss 1-2% below the marking liquidation level
• For shorts: stop-loss 1-2% above the marking liquidation level

This provides a safety cushion between your decision to close and the actual liquidation.

Limit orders for entry

Set limit orders at levels where the marking price reaches certain technical levels. This allows automatic opening of positions at optimal moments, based on fair valuation rather than instant jumps.

When can the marking price fail?

Despite all its advantages, relying solely on this method is dangerous:

During extreme volatility — even the marking system can lag behind market movements. During a crash, all exchanges move simultaneously, and the system simply reacts more slowly.

In case of low liquidity on alternative markets — if a lesser-known coin is mainly traded on one exchange, the marking price loses its meaning, as there are no other quotes for averaging.

Ignoring other risk management tools — the marking price is not a panacea, but just one of the tools. It should be combined with positioning, diversification, and strategic planning.

Frequently Asked Questions

What role does the marking price play in risk management?
It prevents sudden liquidations caused by local price spikes on a single exchange. Traders use it to calculate realistic liquidation levels and set smart stop orders.

Can I use the marking price instead of the last price for forecasting?
Partially. The marking price better reflects the overall market sentiment, but the last price is important for understanding the current moment on a specific exchange. Ideally, use both for a complete picture.

What risks remain even if I rely on the marking price?
The main risk is that the market can move faster than you can close your position. Even a fair marking price won’t save you if a panic sell-off occurs across all platforms simultaneously.

Conclusion

Choosing between the last price and the marking price is not just a technical detail. It’s the difference between being liquidated due to manipulation on one platform or staying in your position thanks to a fair assessment of the entire market. Modern trading platforms use the marking system precisely to protect traders.

Understanding this mechanism and applying it correctly when calculating liquidation levels, placing stop orders, and opening positions can significantly improve your results. Remember: the best risk management starts with understanding at what price the system evaluates your position.