Fair Price Marking

Overview

ZT employs a unique system called Fair Price Marking to avoid unnecessary liquidations in its highly leveraged products. Without this system, unnecessary liquidations may occur if the market is being manipulated, is illiquid, or the Mark Price swings unnecessarily relative to its Index Price. The system is able to achieve this by setting the Mark Price of the contract to the Fair Price instead of the Last Price.

For Perpetual Contracts, the Fair Price is equal to the underlying Index Price plus a decaying Funding basis rate.

For Futures Contracts, the Fair Price is equal to the underlying Index Price plus an annualised Fair Value basis rate, known as the % Fair Basis.

All ADL contracts are subject to Fair Price Marking. Also note that Fair Price Marking only affects the Liquidation Price and Unrealised PNL, it does not affect Realised PNL.

Note: This means that you may see a positive or negative Unrealised PNL immediately after an order executes. This happens when the Fair Price is slightly different from the Last Price. This is normal and does not mean you have lost money, but be sure to keep an eye on your Liquidation Price to avoid a premature liquidation.

Calculation of Fair Price for Perpetual Contracts

The Fair Price for a Perpetual Contract is calculated using only the Funding Basis rate:

Funding Basis = Funding Rate * (Time Until Funding / Funding Interval)

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

For further information on perpetual contract funding calculations and examples please see the Funding Section in the Perpetual Contracts Guide.

Calculation of Fair Price for Futures Contracts

The Fair Price marking calculation for Futures Contracts is slightly different to a Perpetual Contract, and is done by comparing the Impact Mid Price of a contract to its underlying Index Price. This is used to then calculate the % Fair Basis which is then used in the derivation of the Fair Price.

Impact Bid, Ask, and Mid Price

Impact Mid Price = Average (Impact Bid Price, Impact Ask Price) where;

Impact Bid Price = The average fill price to execute the Impact Margin Notional on the Bid side

Impact Ask Price = The average fill price to execute the Impact Margin Notional on the Ask side

The Impact Margin Notional is the notional available to trade with the special  worth of margin and is used to determine how deep in the order book to measure either the Impact Bid or Ask Price.

For Example：

Fair Price Derivation

Once CCFOX has calculated the Impact Mid Price, it can use this number to calculate the % Fair Basis. The % Fair Basis will then be used to calculate the Fair Value of the futures contract which is added to the Index Price to finally create the Fair Price which is used for marking purposes.

Fair Value   = Index Price * (Impact Mid Price / Index Price - 1)

Fair Price   = Index Price + Fair Value

Exceptions

Occasionally, due to index instability, a contract may need to be moved to an alternative mode, Last Price Protected. 

Last Price Protected Marking

Last Price Protected is a marking mode that functions similarly to simple Last Price marking, but with some protections for our users as not to cause unnecessary liquidations.

A price band is created equal to 1 maintenance margin (0.5x each way) around the previously-calculated Mark Price (also known as the Fair Price, calculated above).

The Mark Price is equal to the Last Price, but only within this band created by the Fair Price. If the band moves, the Mark Price will stay. It is allowed to move toward the band but not away from it.

The English manuscripts are all translations of Chinese manuscripts. All of them are subject to the Chinese version. Thank you.