How Is the Mark Price Calculation Different for Perpetual Futures versus Traditional Futures?
For perpetual futures, the Mark Price is calculated to anchor the contract's price closer to the spot market, typically involving a funding rate component and an index price. Traditional futures contracts, which have an expiration date, often use a more straightforward calculation based on the last traded price and the basis of the futures contract, without the complex funding rate mechanism.
The perpetual Mark Price aims to reduce divergence from the underlying asset's price.
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.
Mark Price Calculation
Calculation ⎊ The Mark Price Calculation, within cryptocurrency derivatives and options trading, represents a crucial mechanism for determining a fair and transparent valuation of contracts, particularly in markets exhibiting limited liquidity or price discovery challenges.
Traditional Futures
Derivation ⎊ Traditional Futures, within cryptocurrency and financial derivatives, represent standardized contracts obligating the holder to buy or sell an underlying asset at a predetermined price on a specified future date, differing from perpetual contracts through explicit expiry.
Perpetual Futures
Contract ⎊ Perpetual futures represent a type of financial derivative contract, specifically within the cryptocurrency and options trading space, that replicates the payoff of a traditional futures contract without a fixed expiration date.
Funding Rate Component
Mechanism ⎊ Funding Rate Components represent periodic payments exchanged between traders holding opposing positions in perpetual futures contracts, designed to align the perpetual contract price with the spot market price of the underlying asset.
Funding Rate
Cost ⎊ The Funding Rate is the periodic payment exchanged between long and short positions in perpetual futures contracts, designed to anchor the contract price to the underlying spot index price.