Mark Price and Price Index of COIN-Margined Contracts

Binance Futures uses Mark Price as a reference in liquidations and calculations of unrealized PNL. Mark Price is an estimated fair value of a contract and it differs from ‘Last Price’. Mark Price is used to prevent unfair and unnecessary liquidations that may happen when the market is highly volatile. Additionally, it also helps prevent price manipulation.

It is important to note that mark prices in both perpetual contracts and quarterly contracts are different and they are computed with different formulas and methodologies. We highly recommended reading both support pages (Mark Price in Perpetual Futures and Mark Price in Quarterly Futures) to get a clear understanding of Mark Price methodologies.

A Mark Price consists of two components: Price Index and Moving Average (MA) Basis.

A moving average basis is used as the second component of a Mark Price calculation. It helps to smooth out the price data over a specified period of time by creating a constantly updated average price. This methodology reduces the possibility of unfair and unnecessary liquidations when the market is highly volatile.

Price Index is an aggregate price extracted from the major spot exchanges, weighted by their relative volume; this is done to prevent price manipulation from a single exchange. The Price Index for COIN-Margined contracts derives prices from Bitstamp, Coinbase Pro, Kraken, Binance, Huobi, Kucoin, and OKX.

More information can be found on the Price Index references of each COIN-Margined contract.

Mark Price = Median * (Price 1, Price 2, Contract Price)

Price 1 = Price Index * (1 + Last Funding Rate*(Time Until Funding / 8))

Price 2 = Price Index + Moving Average (2.5-Minute Basis)*

*The Moving Average (2.5-Minute Basis) is calculated as the average of 30 data points over a 2.5-minute period. The data point is calculated every 5 seconds by taking the average of the bid and ask prices and then subtracting the Price Index.

Moving Average (2.5-Minute Basis) = sum of [(Bid1_i + Ask1_i)/2 - PI_i] /30

*Median: If Price 1 < Price 2 < Contract Price, then take Price 2 as Mark Price.

Please note that due to extreme market conditions or deviations in price sources, which may lead to the Mark price deviating from the spot price, Binance will take additional protective measures, i.e., Mark Price = Price 2 in this scenario.

During the system upgrade or the system down that pending all trading activities, the Mark Price calculation is as follows:

Keep the Mark Price formula but set Moving Average (2.5-minute Basis) in Price2 to 0 until the system is back to normal.

Mark Price is a better estimate of the ‘true’ value of the contract, compared to Perpetual Futures prices which can be more volatile in the short term. We use this price to prevent unnecessary liquidations for traders and to discourage any market manipulations by bad actors.

Traditionally, the price of a quarterly Futures contract will converge with its corresponding spot price as the contract expires after the three-month period. As the contract runs down towards expiry, the Mark Price will closely reflect spot prices and the moving average basis component will no longer be part of the Mark Price calculation. This means that the Mark Price of a quarterly Futures contract will be computed differently as it reaches the time of expiration.

Mark Price = Price Index + Moving Average (2.5-Minute Basis) *

*Moving Average (2.5-Minute Basis) = Moving Average ((Bid1 + Ask1) / 2 - Price Index), calculated each minute in a 2.5-minute interval.

Using BTCUSD 0925 as an example:

Mark Price before 25 September 2020, 06:59:59 UTC

= Price Index + Moving Average (2.5-Minute Basis) *

*Moving Average (2.5-Minute Basis) = Moving Average ((Bid1 + Ask1) / 2 - Price Index), calculated each minute in a 2.5-minute interval.

Mark Price on 25 September 2020, 07:00:00 - 07:59:59 UTC

= Average of Price Index (every second from 07:00:00 and 07:59:59 UTC on the delivery day)