Usually we see multiple prices displayed on the contract trading page: the index price, the marker price and the latest price. Why is it necessary to have three prices? What exactly are the meanings and differences between these three prices?

What is an index price?

The index price is the average spot price of a token on several major exchanges. The index price is calculated as: index price = spot price on exchange A x weight of exchange A + spot price on exchange B x weight of exchange B + ....... The higher the trading volume on the exchange, the higher the weight. This means that the higher the trading volume, the more influence the exchange has on the index price.

The purpose of an index price is to provide a fair and accurate picture of the price of an asset in all aspects of derivatives trading, including contracts, perpetuals, funding rates and so on. In other words, index prices are there to ensure that derivative contracts are settled at the right price.

What are Marked Prices?

In addition to the index price, the marker price takes into account another factor: the moving average benchmark. The goal of a moving average benchmark is to provide a constantly updated average price for a certain token over a certain period of time, thus providing an average price during times of high market volatility and discouraging unnecessary forced closures.

It is used as a reference for triggering forced closures, as well as for calculating leverage and unrealized gains and losses. The purpose is to allow for fairness in the closing of forced positions and to prevent market manipulation. It is important to note that the mark-to-market price only affects the liquidation price and the unrealized profit/loss, it does not affect the realized profit/loss.

What is the latest price?

The latest price is the price of a derivative contract at the time of the most recent trade and is updated in real time. The Marker Price is only used to calculate the Unrealized Profit and Loss, while the Last Price is used to determine the Realized Profit and Loss.

Why do I need index prices, marker prices and latest prices?

Trading in the spot market is essentially exchanging a specific quantity of an asset for a different quantity of another asset. But when trading derivatives you don't necessarily have to own a certain asset, but rather trade a contract involving that asset. In this way, derivatives contracts require the use of spot price data in order to carry out long and short contract activities. This is where index prices come into play.

And in order to improve the stability of the contract market and reduce unnecessary forced closure of positions in the event of unusual market volatility, Hotcoin has introduced a system of reasonably marked prices. Without this system, intraday prices could deviate unnecessarily from the price index due to market manipulation or lack of liquidity, leading to unnecessary forced closures.