How Does a Large Deviation between Mark Price and Last Traded Price Trigger a Warning?
A large deviation between the mark price (fair value, derived from the oracle) and the last traded price (exchange spot price) suggests a potential market anomaly, illiquidity, or manipulation on that specific exchange. This deviation triggers a warning or a 'circuit breaker' to alert traders and prevent liquidations based on the potentially manipulated spot price.
The mark price is used as the safe reference point.
Glossar
Last Traded Price
Definition ⎊ Last traded price refers to the most recent price at which a financial instrument, such as a cryptocurrency, option, or future, was bought or sold on an exchange.
Deviation
Variance ⎊ Deviation, within cryptocurrency, options, and derivatives, represents the squared difference between an observed value and its expected value, quantifying the dispersion of potential outcomes around a central tendency.
Mark Price
Valuation ⎊ The Mark Price within cryptocurrency derivatives represents a fair value estimation, calculated to mitigate price manipulation and ensure orderly market functioning, particularly during periods of low liquidity or volatility.