Mark price

What is Mark Price?

In order to improve the stability of the contract market and reduce unnecessary forced liquidation when the market is abnormally volatile, we use the Mark Price to calculate the user's unrealized profit and loss and trigger forced liquidation.

The Mark Price is designed to:

• Prevent market manipulation from triggering unfair liquidations
• Provide a fair reference price that reflects the true market value
• Protect traders from sudden price spikes or flash crashes

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Mark Price Algorithm

$$\text{Mark Price} = \text{Index Price} + \text{Premium Index}$$

Where:

Component	Description
Index Price	Volume-Weighted Average Price (VWAP) of recent spot market trades
Premium Index	Clamped price difference between futures and spot market

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Index Price Calculation

The Index Price is calculated using VWAP (Volume-Weighted Average Price) from recent spot market trades:

$$\text{Index Price (VWAP)} = \frac{\sum_{i=1}^{n} (P_i \times V_i)}{\sum_{i=1}^{n} V_i}$$

Where:

• (P_i) = Price of trade (i)
• (V_i) = Volume of trade (i)
• (n) = Number of recent trades (default: 50)

Example

Trade	Price (sCNH)	Volume (GMYD)	Value (sCNH)
1	1.94	1,000	1,940
2	1.95	2,000	3,900
3	1.93	500	965
4	1.94	1,500	2,910

Calculation:

$$\text{Total Value} = 1{,}940 + 3{,}900 + 965 + 2{,}910 = 9{,}715 \text{ sCNH}$$ $$\text{Total Volume} = 1{,}000 + 2{,}000 + 500 + 1{,}500 = 5{,}000 \text{ GMYD}$$ $$\text{Index Price (VWAP)} = \frac{9{,}715}{5{,}000} = 1.943 \text{ sCNH}$$

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Premium Index Calculation

The Premium Index measures and limits the deviation between the futures contract price and the spot (index) price:

Formula

Step 1: Calculate Premium Index Rate

$$\text{Premium Index Rate} = \frac{\text{Futures Last Price} - \text{Index Price}}{\text{Index Price}}$$

Step 2: Clamp the Rate

$$\text{Clamped Rate} = \text{clamp}(\text{Premium Index Rate}, -0.05\%, +0.05\%)$$

Step 3: Convert to Absolute Value

$$\text{Premium Index} = \text{Index Price} \times \text{Clamped Rate}$$

Clamp Function

Premium Index Rate	Clamped Rate
> +0.05%	+0.05%
< -0.05%	-0.05%
Between -0.05% and +0.05%	Unchanged

Example

Parameter	Value
Futures Last Price	1.96 sCNH
Index Price	1.943 sCNH

Calculation:

$$\text{Premium Index Rate} = \frac{1.96 - 1.943}{1.943} = \frac{0.017}{1.943} = 0.00875 = 0.875\%$$

Since 0.875% > 0.05%, apply clamp:

$$\text{Clamped Rate} = 0.05\%$$ $$\text{Premium Index} = 1.943 \times 0.0005 = 0.00097 \text{ sCNH}$$

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Complete Mark Price Calculation Example

Scenario: Futures Trading at Premium

Parameter	Value
Spot VWAP (Index Price)	1.943 sCNH
Futures Last Price	1.96 sCNH

Step 1: Calculate Index Price

$$\text{Index Price} = 1.943 \text{ sCNH (VWAP of 50 recent spot trades)}$$

Step 2: Calculate Premium Index Rate

$$\text{Premium Index Rate} = \frac{1.96 - 1.943}{1.943} = 0.875\%$$

Step 3: Clamp Premium Index Rate

$$\text{Clamped Rate} = \text{clamp}(0.875\%, -0.05\%, +0.05\%) = 0.05\%$$

Step 4: Calculate Premium Index

$$\text{Premium Index} = 1.943 \times 0.0005 = 0.00097 \text{ sCNH}$$

Step 5: Calculate Mark Price

$$\text{Mark Price} = 1.943 + 0.00097 = 1.94397 \text{ sCNH}$$

Scenario: Futures Trading at Discount

Parameter	Value
Spot VWAP (Index Price)	1.943 sCNH
Futures Last Price	1.90 sCNH

Calculation:

$$\text{Premium Index Rate} = \frac{1.90 - 1.943}{1.943} = -2.21\%$$ $$\text{Clamped Rate} = \text{clamp}(-2.21\%, -0.05\%, +0.05\%) = -0.05\%$$ $$\text{Premium Index} = 1.943 \times (-0.0005) = -0.00097 \text{ sCNH}$$ $$\text{Mark Price} = 1.943 + (-0.00097) = 1.94203 \text{ sCNH}$$

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Mark Price Safety Mechanism

To prevent erroneous price updates from affecting the system, a safety check is applied:

$$\text{Change Rate} = \frac{\text{New Mark Price} - \text{Old Mark Price}}{\text{Old Mark Price}}$$

Condition	Action
Change Rate ≤ 10%	Update accepted
Change Rate > 10%	Update rejected

This protects against:

• Erroneous external price data
• Flash crashes in the spot market
• API errors or malformed data

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Mark Price vs Last Price

Price Type	Usage	Source
Mark Price	Unrealized PnL calculation, Liquidation triggers	Index Price + Premium Index
Last Price	Trading, Order execution	Most recent trade in futures market

Why Use Mark Price for Liquidation?

Scenario	Last Price	Mark Price	Liquidation Risk
Market manipulation (pump)	2.50 sCNH	1.95 sCNH	Shorts protected from false liquidation
Market manipulation (dump)	1.50 sCNH	1.93 sCNH	Longs protected from false liquidation
Normal market	1.95 sCNH	1.94 sCNH	Fair liquidation based on true market value

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Summary

Component	Formula / Description
Index Price	VWAP = Σ(Price × Volume) / Σ(Volume)
Premium Index Rate	(Futures Last Price − Index Price) / Index Price
Clamped Rate	clamp(Premium Index Rate, −0.05%, +0.05%)
Premium Index	Index Price × Clamped Rate
Mark Price	Index Price + Premium Index
Safety Limit	Reject updates with > 10% change

Key Points

• Index Price is based on VWAP of spot market trades (50 recent trades)
• Premium Index is clamped to ±0.05% to prevent extreme deviations
• Mark Price is used for unrealized PnL and liquidation calculations
• Safety mechanism rejects updates exceeding 10% change
• The system protects traders from market manipulation and flash crashes