In relation to cryptocurrencies, it is a price used as an input for calculation of the liquidation price of a cryptocurrency perpetual contract. For crypto futures, mark price represents one of different price reference mechanisms that determine the price behavior of such contracts. These reference prices are the last price, the index price and the mark price.

Reference prices – specifically the mark price – help determine the value of a position and can be used as mechanisms for triggering liquidations. Therefore, such prices provide mechanisms for o effective risk management (market-instigated reactionary mechanisms).

In perpetual contracts (crypto futures), the mark price refers to the latest marked price of the contract, rather than its actual trading price. The last price (marked price) is the last price of the contract or instrument being traded on a given platform. Market participants are required to maintain sufficient margin in their trading accounts to ensure that their positions are not forcibly liquidated when the mark price drops below the predetermined liquidation price.

Generally, mark price represents an estimate of an asset’s or contract’s fair value at a given point in time. It is used to determine margin requirements, liquidations and to value open positions. Mark price is calculated using an index price, which is constructed from a weighted average of real-time prices prevailing at multiple exchanges. The index price reflects the average price of the contract/ instrument, derived from a basket of spot prices in similar markets. Index prices are derived from data provided by various exchanges, each having its own weightage.

Therefore, mark price is theoretical in nature, and its calculated value differs from one platform to another. However, the mark price provides an estimate of the most relevant price that can mitigate the impact of market fluctuations and abnormal prices on the liquidation price of perpetual contracts.