What is the dual price mechanism of perpetual futures

11/21/2022, 10:03:56 AM

Beginner

Highlights:1. Gate Learn beginner topic provides users with basic futures knowledge, product introduction and trading guidance;2. In this topic, the dual price mechanism of perpetual futures will be introduced. From priniciple, concept to advantages, you will learn Gate.io’s secret of avoiding exchange spike.

What is the dual price mechanism of perpetual futures

Gate.io adopts dual price mechanism in futures trading to protect users from market manipulation.

By increasing the price difference between exchange market price and spot price, market manipulation can cause massive forced liquidation among users. It costs investors huge amounts of hard-earned money and also destroys the reputation of crypto industries.

Gate.io cares about creating a fair trading environment for all our users. So, we adopt dual price mechanism to avoid market manipulation. Dual price mechanism is composed of mark price and latest market price.

Mark price

What is mark price

Mark price is a weighted price based on outside market. After taking into consideration the funding basis which declines over time, mark price equals to the real time spot price in major crypto exchanges.

To avoid unnecessary forced liquidation and combat market manipulation, Gate.io uses mark price instead of latest purchase price to assess forced liquidation, which will of course not affect final profits or losses.

In addition, using mark price can also help to anchor the trading price inside and outside the exchange. For example, the spot price outside the exchange is 5,000 USD, and the price inside is 5,010 USD. At this time, opening a long position (set the position at 5,010 USD) is more likely to trigger forced liquidation. As a result, users are encouraged to open short positions to bring down the price closer to spot price outside the market.

The calculation of mark price

Mark price= index price*(1+funding rate basis rate)
Funding rate basis rate=funding rate*( current time interval from the current funding period / funding cycle)

Latest market price

Last price refers to the market price on Gate.io. It normally adopts funding rate mechanism and is linked with spot price. As a result, Gate.io product prices will not vastly diverge from spot market price.

Closing thoughts

Gate.io adopts dual price mechanism, which prevents big players from manipulating the market from the product end. The mechanism allows users to have a sound sleep when holding the positions.

To check out more futures trading real practices, go to Gate.io futures trading. Click here to register and start your journey.

Disclaimer

This article is for informational purposes only. Such information provided by Gate.io does not constitute any investment advice and we are not responsible for any investment you make. Technical analysis, market judgments, trading tips, and trader sharing may involve potential risks, changing investment environment, and uncertainties. This article does not provide or imply any opportunities with guaranteed returns.

Author: Frank

Translator: Kris

Reviewer(s): Levion

* The information is not intended to be and does not constitute financial advice or any other recommendation of any sort offered or endorsed by Gate.

* This article may not be reproduced, transmitted or copied without referencing Gate. Contravention is an infringement of Copyright Act and may be subject to legal action.

Content

What is the dual price mechanism of perpetual futures

Mark price

Latest market price

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