Mark price, index price and the last trade

The last trade is the price of the most recent fill on that venue. It is the fastest of the three and the least reliable, because a single small order into a thin book sets it. The index price is an external reference built from spot markets elsewhere. The mark price is the valuation the venue itself puts on the contract, and it is the one that computes unrealised profit and loss, margin health and liquidation.

An index aggregates the price of the underlying across several independent spot venues, usually as a median or a weighted mean with outlier rejection. The point of using more than one source is that no single venue can set it: if one exchange prints a hundred dollars away from the rest, the median ignores it. Which venues are in the basket, how they are weighted and how often the index updates are all published parameters worth reading once for any market you size seriously.

The perp is not the spot asset, so valuing it purely at the index would ignore any legitimate premium or discount in the contract. Venues therefore mark at the index plus a smoothed basis, or at the median of the index, the best bid and the best ask, or something in that family. The common property is that all of them resist a single print. A mark price you can move with one order is a mark price that can be used to liquidate other people.

Suppose the index sits at ninety-eight thousand, the mark at ninety-eight thousand and ten, and a thin book lets one aggressive sell wick the last trade down to ninety-two thousand for a second. A long with a liquidation price of ninety-five thousand is untouched, because the engine reads the mark and the mark never went there. On a venue that liquidated off the last trade, the same wick would have closed the position, and the trader who caused it would have been paid for doing so. That is the entire reason the distinction exists.

A gap between mark and index is information rather than an error.

• A steady premium of mark over index means the contract is bid, which is what pushes funding positive
• A sudden gap means the venue book has dislocated from the wider spot market, usually liquidity rather than news
• A frozen index during an outage means the mark stops tracking reality, and some venues halt trading rather than mark against a stale feed
• Last trade far from mark on a low-volume market usually means one order, not a repricing

Three questions cover most of it. Which price triggers liquidation. Which price triggers stop and take-profit orders, because that is often configurable per order and defaults differ. And what the index is made of, including what happens when a constituent goes offline. Venues that answer all three in public documentation are the ones where a surprise liquidation is likely to be your own arithmetic rather than theirs.