VII. Fair price of Coin-margined Perpetual Contract

Why MCX employs fair prices to calculate the PnL and liquidation?

MXC perpetual contract employs the unique system called fair price making to avoid the unnecessary liquidation in its highly leveraged products. Without that system, the unnecessary liquidation will occur if the market is being mani[pilated or lacks liquidity, or the mark price swings unnecessarily relative to its index price. The system sets the mark price to the fair price instead of the latest price to avoid unnecessary liquidation.

Fair price mechanism

For the perpetual contract, the fair price equals to the underlying index price plus decaying the Funding basis rate.

All ADLs Contract employs fair price marking. Please note that the fair price marking only affect the liquidation price and unrealized PnL, and it will not affect realized PnL.

Note: This means that the user can see a positive or negative unrealized PnL immediately when the order executed, which is caused by the derivation between a fair price and the last price. This is normal and does not mean that the user lost the fund, but the user needs to pay attention to the liquidation price to avoid A premature liquidation.

Calculation of  fair price for the perpetual contract 

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

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

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