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Futures Guide

Perpetuals Trading Series: How does Marking work on EQUOS?

January 19, 2021
On EQUOS, we differentiate between the Market Price and the Mark Price of the perpetual. The Market Price is the last traded price of the product on EQUOS. The Market Price may deviate (significantly) from the rest of the market for example in case of large orders or an illiquid order book. The Mark Price gives a fairer value for the contract by taking a 3-second TWAP of the Market Price. A TWAP is the average of the open, high, low and close price for a specific period. In the case of the Mark Price these periods are three 1-second intervals. As the Mark Price is used for P&L calculation and to determine whether the position needs to be liquidated, using a TWAP to smooth out temporary spikes in prices should prevent unnecessary liquidations.

On many other platforms the Mark Price is based on an (Exchange) Index, which is a basket of spot contracts across a multiple of exchanges. On EQUOS the perpetual futures Mark Price is based on the EQUOS Perpetual product itself as we believe this to be more prudent. However, our Mark Price will be bound by a spread to the Exchange Index to prevent market manipulation. The spread bound to the Exchange Set is initially set at 0.2% but as the liquidity on our platform grows we plan to relax this bound. Over time perpetual futures on EQUOS thus becomes less reliant on the Exchange Index and more a product of EQUOS’ own order book. The TWAP is based on the open, high, low, and close price of 1-second bars. 


Example 

The below examples show the relation between Market Price and the Mark Price. We illustrate the effect of bounding the Mark Price to the Exchange Index by assuming the last executed trade was a particularly large order and therefore got filled significantly lower than previous orders.


Example 1 - The effect of a large order on the Market Price 

Assume we have had the following traded prices for EQUOS BTC Perpetual over the past 3 seconds, and the very last trade was a particularly large order that therefore got filled at a price significantly below the rest of the orders and the market.

After trade 13 got executed, the Market Price of the EQUOS BTC Perpetual future was 9,997 USDC. The particularly large order, trade 14, got filled at 9,953 and therefore pushes the Market Price down by 0.44% to 9,953 USDC. 


Example 2 - How the Mark Price differs from the Market Price 

To calculate the Mark Price, we need to calculate the TWAP. The TWAP is the average of the Open, High, Low, and Close for each 1-second period:

 Thus, the 3-second TWAP of the Market Price in this case is 9,994.25 USDC. Let’s further assume the Exchange Index is at 10,000 USDC. The bounds to our Mark Price then are 10,000 x (1 - 0.2%) = 9,980 USDC and 10,000 x (1 + 0.2%) = 10,020 USDC. As 9,994.25 is within the bound, we say the Mark Price = 9,994.25 USDC. Note that the Market Price is 0.41% below the Mark Price. If we would have marked the contract at the Market Price, this could have caused liquidations of positions from highly leveraged traders.


Example 3 - When the Mark Price hits the Exchange Index bound 

Assume the same traded prices as in the previous examples such that our Market Price is still 9,953 USDC and the 3-second TWAP of the Market Price is still 9,994.25 USDC. Now assume that the Exchange Index is trading at 10,020 USDC. The bounds to the Mark Price now are 10,020 * (1 - 0.2%) = 9,999.96 USDC and 10,020 * (1 + 0.2%) = 10,040.04. In this case the 3 second TWAP of the Market Price is outside of the bounds to the Exchange Index. The Mark Price is set to the nearest bound, such that Mark Price = 9,999.96 USDC. 


Download the full perpetuals guide from the EQUOS Archives homepage. 

Trade perpetuals here: EQUOS.io.

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