Last Price vs. Mark Price in Futures: What Does It Mean for TP/SL?

Crypto derivatives have become increasingly popular in recent years as a way for traders to gain exposure to the cryptocurrency market without directly owning digital assets. However, understanding the fundamental concepts behind crypto derivatives can be challenging, particularly for newcomers. Mark Price, Index Price and Last Traded Price are key components of crypto derivatives trading for every crypto trader. 

In this article, we'll explore what these terms mean in an order book, how they’re derived, and how you can use them to your benefit.

What Is the Last Traded Price (Last Price)?

The last traded price is the latest price at which a derivative contract for a specific cryptocurrency has been traded. It reflects the most current market conditions, as well as the most accurate representation of the market value of the cryptocurrency at a given moment in time. The last traded price is updated in real time and is used to determine a trade's realized profit and loss. Essentially, when a trader closes out their position, the profit or loss is the difference between the entry price and the last traded price.

What Is the Mark Price?

The mark price is a benchmark for the value of the underlying cryptocurrency. It’s used to calculate the unrealized profit and loss of a trade, providing traders with a more accurate picture of the potential profitability of a trade.

Bybit calculates the mark price using the median price of two index prices and the last traded price. The two index prices are calculated as a function of the global spot price index and the funding rate or moving average. In some cases, if the index prices are abnormal, the mark price is based on the last traded price. The goal is to make the mark price a fair and objective representation of the market value of the underlying cryptocurrency.

Liquidation Price

Bybit also uses the mark price to trigger liquidation in the case of extreme market volatility. If a trader's position margin drops below the required level, the system will automatically liquidate the position at the mark price, ensuring that traders are protected against significant losses.

Unrealized Profit and Loss (P&L)

Unrealized P&L refers to the potential profit or loss of an open position based on the current market price and the entry price. Bybit calculates the unrealized P&L of a trade based on the difference between the mark price and the entry price, providing traders with a more accurate picture of the potential profitability of a trade. Unlike realized P&L, which only considers closed positions, unrealized P&L reflects the potential profit or loss of open positions, and can change in real time based on market conditions.

Why Do We Need Index Price, Mark Price and Last Price?

When trading crypto derivatives such as futures, traders need access to up-to-date and accurate price information to make informed investment decisions. This is because in futures trading, unlike spot markets, you don't own the asset; you only trade the contract linked to it. Hence, you need to know the index price, mark price and last traded price to help you manage potential losses, and to lock in profit.

Last Price vs. Mark Price: Differences

While the last price and mark price are related, they serve different purposes, and have distinct characteristics that set them apart.

As the name suggests, last price refers to the latest price at which investors have traded a derivatives contract. It reflects the real-time market price of the underlying asset and is used to determine realized profit and loss. The last price is updated constantly, providing traders with a real-time snapshot of the current market conditions.

On the other hand, mark price is an estimate of the actual market value of an underlying asset. Unlike the last price, mark price isn’t a traded price, but rather a theoretical price that considers various market factors such as the liquidity of the asset and the trading volume. Mark price is used to calculate unrealized profit and loss, helping traders assess performance without waiting for their positions to be closed.

Learn more: 5 Best Strategies You Can Master to Trade Derivatives on Bybit

How to Set Last Price and Mark Price in TP/SL on Bybit

To set a take profit (TP) or stop loss (SL) order on Bybit, you'll first need to set the last price or mark price as the trigger price. Here's a simple guide for how to do it:

1. Log in to your Bybit account and go to the trading interface.

2. Select the cryptocurrency pair you want to trade, and choose either a long or short position.

3. Input your position size and choose either the Last Price or Mark Price as the trigger price for your TP/SL order.

4. Input the desired TP/SL price level.

5. Confirm and place the order.

On Bybit, you can set your TP/SL order using either the last price or mark price as the trigger price. Depending on the market conditions, using either the last price or mark price as the trigger price may offer more benefits, making it imperative to know the differences and how they affect your trades.

It’s worth remembering that TP/SL orders aren’t guaranteed to be executed at the exact price level you set, since they’re subject to market conditions and the availability of liquidity. Therefore, assess the risk involved and monitor your trades regularly to minimize any potential losses.

Trade Derivatives to Win Up to $5,000 Rewards

Recap 

Last traded price and mark price are foundational to trading crypto derivatives. Last traded price is the latest price at which a derivative contract has been sold, and is used to determine the realized profit and loss of a trade. Mark price serves as a benchmark for the value of an underlying cryptocurrency and is used to calculate the unrealized gain and loss. Traders can set TP/SL orders using either the last price or mark price as the trigger price, but it's essential to understand the differences between them in order to assess the risk involved in trades.