How Is the Index Price Typically Weighted When Calculating a Composite Rate?
The Index Price is typically weighted by the trading volume or the liquidity of the underlying asset on each constituent exchange. Exchanges with higher, verified trading volume or deeper order books are given a greater weight in the calculation.
This ensures the composite rate reflects the most robust and representative market price.
Glossar
Trading Volume
Liquidity ⎊ ⎊ Trading volume represents the total quantity of an asset ⎊ cryptocurrency, options contracts, or financial derivatives ⎊ bought and sold within a given timeframe, typically expressed in units or notional value.
Index Price
Derivation ⎊ Index price construction for crypto derivatives requires selecting a representative basket of underlying assets and calculating a weighted average based on established market capitalization or volume metrics.
Verified Trading Volume
Attestation ⎊ Verified Trading Volume represents a critical metric in cryptocurrency and derivatives markets, signifying the confirmed exchange of assets, mitigating concerns around wash trading and inflated figures often prevalent in less regulated venues.
Deeper Order Books
Provision ⎊ Deeper order books represent a market condition where there is a substantial volume of buy and sell orders at various price levels away from the current market price.