Understanding the Three Types of Prices in Futures Trading: Index Price, Fair Price, and Market Price

When participating in Futures trading, you will frequently encounter three different price levels: Index Price, Fair Price, and Latest Price. Although they may seem similar, each type of price plays a distinct role in managing positions and calculating profits and losses. Let’s explore their differences and significance.

Position of the Three Prices on the Trading Interface

On the Futures trading page, these three price levels are clearly displayed, usually close to each other. While the numbers may not differ significantly under normal conditions, the differences become important in complex trading situations, especially when using high leverage.

Index Price: The Foundation of Fair Valuation

Index Price (Index Price) is constructed from spot price data collected from at least three different trading platforms. Each platform is assigned a specific weight to calculate a weighted average price. This method helps ensure that the index price reflects the actual global market, unaffected by local price fluctuations on a single exchange.

Fair Price: Protecting Traders from Unnecessary Liquidation

Fair Price (Fair Price) is a unique concept designed to protect traders. It is calculated based on the index price combined with the base interest rate and capital costs.

The formula for calculating the fair price is as follows:

Funding Basis = Funding Rate × (Time until funding / Funding interval)

Fair Price = Index Price × (1 + Funding Basis)

The system uses the fair price to calculate unrealized losses and determine which positions need to be liquidated. This means your position will be liquidated based on the fair price rather than the nearest transaction price. This approach is especially important for those using high leverage, as it prevents liquidation due to sudden price jumps.

Latest Price: Actual Market Trading Price

Latest Price (Latest Price) is the real-time market trading price on the platform. It is the price at which new orders are matched and can fluctuate frequently based on current buying and selling activity.

Why Are the Three Prices Important

These three levels of prices provide a more comprehensive view of the market situation. You can use different types of prices when placing stop orders (stop orders) to optimize your trading strategy. Understanding these differences will help you better manage risks and make smarter trading decisions.

Disclaimer: Cryptocurrency trading involves significant risks and may lead to the loss of your invested capital. The materials provided are not related to offering investment, tax, legal, financial, accounting, consulting, or any other services and are not recommendations to buy, sell, or hold any assets. They are for informational purposes only and do not constitute financial advice. You should ensure you fully understand the risks involved before investing.