The calculation of Mark Price is intricately linked to the Funding Rate. Unrealized PnL is the primary driver of liquidations. It is important to ensure that the Unrealized PnL calculation is accurate to avoid unnecessary liquidations. The underlying contract for the Perpetual Contract is the ‘true’ value of the Contract, and an average of the prices on the major markets constitutes the “Price Index,” which is the primary component of Mark Price.
OrangeX Index Price derives from Binance, Bitfinex, Bitstamp, Bittrex, Coinbase, Exmo, Gate, Gemini, Huobi, Kraken, Kucoin, Mxc, Okex, Poloniex. The highest and lowest prices are also removed before calculating the average.
Now that we’ve computed the Price Index, which can be considered as the “Spot Price,” we can move forward in calculating the Mark Price, which is used for all Unrealized PnL calculations. Note that Realized PnL is still based on the actual executed market prices.
Mark price formula for perpetual futures contracts is as follows:
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 (30-minute Basis)*
Contract Price = (Bid1 + Ask1) / 2
*Median: If Price 1 < Price 2 < Contract Price, then Price 2 is taken as Mark price.
*Moving Average (30-minute Basis) = Moving Average ((Bid1 + Ask1) / 2- Price Index), which measures every minute in a 30-minute interval
Please note that due to extreme market conditions or deviations in price sources, which may lead to mark price deviating from the spot price, OrangeX will take additional protective measures, i.e., Mark price = Price 2 in this scenario.
Mark Price is a better estimate of the ‘true’ value of the contract than Perpetual Futures prices, which can be more volatile in the short term. We use this price to prevent unnecessary liquidations for traders and discourage poor actors' market manipulations.
BTCUSDT Index Price = Σ [(BTCUSDT of Exchange 1) + (BTCUSDT of Exchange 2) + (BTCUSDT of Exchange 3) + ......] / Total Exchange Number
In the event of extreme price volatility or deviation from the price index, OrangeX will undertake additional protective measures, including but not limited to changing the constituents of the price index.
OrangeX reserves the right to update the Price Index references from time to time.