What it means
Index price aggregates spot prices from major exchanges (Coinbase, Binance, Kraken) using a volume-weighted formula. Mark price is a derived value used by the exchange for liquidation calculations: typically a moving average of index price + funding-adjusted basis. The distinction matters because mark price (not last-traded price) determines whether positions liquidate. A flash crash on a single exchange that doesn't move the broader index won't liquidate positions even if the perp's LTP touches the liquidation level.
Why it matters
Mark price protects traders from 'flash liquidation' — a brief price dislocation on the derivative venue that doesn't reflect the broader market. Without mark price (some early exchanges used LTP), a 30-second wick would liquidate positions that the broader market would have recovered. Modern mark-price systems prevent this but introduce their own risk: when mark price LAGS rapid index price moves, liquidations can stack up.
How to use it
Check the mark price (not LTP) when assessing position health. Most exchanges display both prominently. Stop-loss orders should reference mark price, not last-traded price, for consistent liquidation/stop interaction.
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