Why Do Liquidations Use Mark Price Instead of the Last Trade?

Exchanges use mark price for liquidations so that one trade or a brief wick in a single order book does not unfairly close positions. It usually combines a broader spot index with a smoothed perpetual-contract basis. Mark price can still move quickly, and every venue has its own formula, so traders must inspect the rules of the specific platform.

How do the three prices differ?#

Last price is the latest executed trade in one order book. Index price combines several external spot venues. Mark price estimates derivatives fair value. OKX documentation describes it as index price plus smoothed basis, while other venues use different medians and clamps.

Why can last price create a false signal?#

A thin book, large market order, or brief liquidity failure can print one trade far from the market. Liquidating at that point would be easier to manipulate. Mark price reduces the influence of one print but does not promise slow movement during a market-wide collapse.

How does this affect PnL and stops?#

An exchange may calculate unrealized PnL from mark price while candles use last price, so displayed values diverge. Stops can trigger on last, mark, or index price. If a stop waits for last while mark crosses liquidation first, forced closure occurs before the stop.

What are the limits and risks?#

An index depends on constituent venues and outlier handling. During a broad gap, all sources move together. Formulas, maintenance margin, and fees vary, while high leverage leaves little room for error or delay.

What are the key takeaways?#

• Last price is the most recent executed trade.
• Index price aggregates the external spot market.
• Mark price estimates contract fair value.
• Liquidation depends on the venue formula.
• A last-price stop does not guarantee protection.