Dual Price Mechanism Overview

What is Dual Price Mechanism?

The Dual Price Mechanism is used for the following 3 cases.

1. To ensure traders are not falsely victimized from any market manipulation, illiquidity or deviation of the futures price from the spot price.
   
2. To compose a fair trading environment for all traders on MCS.
   
3. To allow long-term convergence of futures prices to spot prices.
   
   

Dual Price Mechanism Constitution

The Dual Price Mechanism constitutes the Mark Price and Last Traded Price.

Mark Price

The Mark Price is made up of the global spot price index and funding basis rate, in other words, a real-time spot price on major cryptocurrency exchanges. In addition, MCS uses the Mark Price as the trigger for liquidations. If the Last Traded Price is used as the trigger of liquidation, when the Last Traded Price is significantly deviated from the spot price due to any market manipulation or illiquidity, there are high chances of unnecessary liquidations. Therefore, the traders' position will only be liquidated when the mark price reaches the liquidation price on MCS.

Mark Price Equation

$$ \textsf{Mark Price [MP]} = {\textsf{Index Price}\times (\textsf{1 + Funding Basis*})} $$

\begin{align}&\scriptsize\textsf{*Funding Basis}={\textsf{Current Funding Rate}}\times{\textsf{Time until Funding}\over\textsf{Funding Interval}}\end{align}

Last Traded Price

The Last Traded Price is the current market price on MCS. To ensure the Last Traded Price does not deviate largely from the spot price, a way of paying interest between the long and short is used called Funding.

*Note: In a highly fluctuating market, the Last Traded Price on MCS may temporarily deviate from the Mark Price. Traders must ensure to pay attention to the Liquidation Price and the Mark Price interval to prevent unnecessary liquidations.

<Example: Why Dual Price Mechanism is Needed>

The current Mark and Last Traded Price are traded at a similar value of 10,000 USDT and 10,001 USDT respectively. Bitcoin Billionaire David decides to short all of his bitcoins with 100x leverage at the market price on MCS. The Last Traded Price plunges to 5,000 USDT while the Mark Price remains at 10,000 USDT.

If the Last Traded Price is used for liquidations, most of the leveraged traders with long positions would have been unnecessarily liquidated. On MCS, these undesired liquidations are prevented through the Dual-Price mechanism.

Index Price

Index price represents the weighted average price of the major spot exchange prices. The average price of the exchanges remaining after excluding the highest and lowest outliers are used to calculate the index price. (The average of the Best Ask and Best Bid prices are considered as the average price of the exchange.)

Spot Exchanges used to calculate BTC/USDT Index Price on MCS

7 in Total

• Binance
• Bitfinex
• Huobi Global
• OKEx
• Bittrex Global
• HitBTC
• Poloniex