How does the mark price help traders avoid forced liquidation?

In cryptocurrency derivatives trading, risk management is not just a slogan but a survival rule. Especially for traders engaged in leverage trading, mastering a set of scientific protective tools is essential. Among them, цена маркировки (marking price) is a sharp tool in the hands of professional traders — it reflects the true value of derivatives more accurately, helping you brake when on the edge of forced liquidation.

Why is the marking price more reliable than the last traded price?

On exchanges, the last traded price can be easily manipulated. A large order hits the market, causing the price to plummet instantly, but this does not necessarily reflect the asset’s true value. The emergence of the marking price aims to solve this problem.

The marking price is a reference price calculated based on the spot index prices from multiple exchanges. Simply put, it describes the average performance of the asset across various markets. This method allows the system to filter out price noise from individual markets, providing a more stable and genuine valuation. This “denoising” mechanism is crucial for leverage traders because the determination of forced liquidation is based on the marking price, not the easily manipulated last traded price.

The calculation principle of the marking price

Understanding how the marking price is calculated is the first step for traders to take control.

The marking price consists of two key components: spot index price and exponential moving average (EMA) of basis.

The spot index price is a weighted average of the asset’s prices across multiple spot markets. This ensures the price reflects real market demand rather than virtual quotes from derivatives markets.

Basis is the difference between the spot price and the futures price. This difference contains market expectations about future prices. EMA smooths this basis, giving more weight to recent data, allowing quick response to market changes without overreacting.

The specific formula is:

Marking Price = Spot Index Price + EMA((Optimal Bid Price + Optimal Ask Price) / 2 - Spot Index Price)

This formula may look complex, but essentially it states: use the market average as a base, then make slight adjustments based on the latest supply and demand conditions.

Terms you need to know

Spot Index Price: The aggregated price derived from data collected across multiple exchanges, calculated as a weighted average. It is more representative than a single exchange’s price.

Basis: The difference between the spot market price and the derivatives market price. When basis is positive, futures prices are higher than spot; when negative, the opposite. This reflects market expectations of future asset trends.

Exponential Moving Average (EMA): A technical indicator that assigns higher weight to recent data. Compared to simple moving averages, EMA is more sensitive and better at capturing real-time market changes.

Optimal Bid Price: The highest price a trader is willing to pay for the spot asset at a given moment.

Optimal Ask Price: The lowest price at which a trader is willing to sell the spot asset at a given moment.

The difference between marking price and last traded price: what is it?

These two prices play completely different roles in trading.

The last traded price is literally — the price of the most recent transaction. If a large trader suddenly closes a position causing a market dump, the last traded price will drop sharply, but this may not reflect the market’s true sentiment.

The marking price is a reference price derived through multi-market averaging and smoothing. Its fluctuations are more stable and harder to manipulate in the short term. In risk management, exchanges use the marking price to calculate margin ratios and forced liquidation prices, effectively preventing unfair forced liquidations caused by short-term price swings.

For example, suppose you hold a long position. Suddenly, a large short seller dumps the market, causing the last traded price to fall by 5%. If the platform only considers the last traded price, your position might be liquidated immediately. But if using the marking price, which considers prices from other exchanges and historical basis, this 5% drop is “absorbed” to some extent, giving you more reaction time.

How do exchanges use the marking price to protect users

Many mainstream exchanges have adopted the marking price system to calculate margin ratios instead of simply relying on the last traded price. What does this policy shift mean?

Protect leverage traders: By calculating forced liquidation prices based on the marking price, it prevents unexpected liquidations caused by short-term price volatility or manipulation.

Establish fair mechanisms: The marking price is based on aggregated data from multiple markets, so manipulation in a single market cannot influence forced liquidation decisions.

Reduce systemic risk: A stable marking price system reduces chain reactions caused by “black swan” liquidations.

How to apply the marking price in practical trading

Understanding the marking price is just the first step. True experts are those who know how to use it to optimize their trading strategies.

Precise calculation of liquidation levels

Before placing an order, use the marking price to reverse-calculate the maximum loss you can tolerate. Setting the liquidation price based on the marking price rather than the last traded price prevents short-term fluctuations from triggering it, making your risk management more scientific. If your liquidation threshold is based on the marking price, you can gain an extra 10%-20% buffer.

Optimize stop-loss placement

Many professional traders set stop-loss orders based on the marking price instead of the last traded price. For long positions, they place stop-loss slightly below the marking price; for shorts, slightly above. This approach prevents false triggers caused by market noise.

Use limit orders to catch marking price opportunities

Smart traders will automatically place limit orders when the marking price reaches certain levels. For example, when the marking price approaches a technical support level, you can pre-place a buy order. When the market confirms this level, your order executes automatically. This way, you won’t miss opportunities and can avoid chasing highs or selling lows.

Hidden risks when using the marking price

Although the marking price is designed intelligently, it is not a silver bullet.

Failure in extreme conditions: During intense volatility, even the marking price may lag behind the market. If multiple exchanges face liquidity shortages simultaneously, the reference value of the marking price diminishes significantly.

Over-reliance trap: Some traders treat the marking price as the sole risk indicator, neglecting other important risk management tools. It’s like putting all eggs in one basket — very risky.

Time lag issues: Updating the marking price takes time. In sudden, sharp movements, the marking price may not react quickly enough before forced liquidation occurs.

Summary: why every trader should understand the marking price

цена маркировки is not just a technical concept; it is the infrastructure of the modern crypto derivatives market. Understanding it means understanding how the market protects participants from price manipulation. Mastering it means adopting more scientific risk management methods.

Whether you are a leverage trading novice or an experienced market maker, the marking price is something you deal with daily. From calculating liquidation levels to setting stop-loss orders, from choosing entry points to managing position risks, it works silently behind the scenes. Next time you see your position is safe, remember — it’s the marking price safeguarding you behind the scenes.