Conversation

SBF
@SBF_FTX
1) At FTX, our default 'price' that we report for a market is what we cal "mark price": the median of bid, ask, and last. Why?
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SBF
@SBF_FTX
2) First, some examples: If bid is 290, ask is 295, and last is 292, mark price is 292 If bid is 290, ask is 295, and last is 310, we report 295
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SBF
@SBF_FTX
3) Why this, instead of last? The first thing to note is that mark price is definitely _reasonable_. Whatever method you use, you probably shouldn't report a price lower than the bid or higher than the offer; BTC's price definitely isn't 9350 if you can buy i at 9340!
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SBF
@SBF_FTX
4) But already we see that 'last'--what most venues use--fails this test! On most exchanges if the last trade was 1 hour ago at 9340, and the market is 9350 @ 9360, they'll report 9340 as the 'price'. It is a price of a sort--but clearly not the most important price to show!
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SBF
@SBF_FTX
6) But that's not the only reason they do. Ask some exchanges (e.g. the esteemed DueDEX), and they'll eventually admit to faking volume if you push hard enough--but claim they only did it so that the graph updates.
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SBF
@SBF_FTX
7) This is a terrible solution but it does represent a real problem: if your market last traded 5 hours ago and prices have changed since then, 'last' will be out of date. And if you're graphing last price, your graph will not display a reasonable current price.
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SBF
@SBF_FTX
Replying to
@SBF_FTX
10) To be clear, I do _not_ endorse faking volume to make graphs look pretty--it's vital for the space that we present real accurate data. That's, like, the whole point of blockchains! But this does present a real headache for many exchanges. Using our mark price fixes this.
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SBF
@SBF_FTX
11) So, ok, last isn't great. But why not mid? Well, say that some exchange's market is $10 @ $9500. "Mid" is $4755, but that's probably not what the coin is worth. It could be worth $9400! The problem is that if markets are too wide, mid might be crazy.
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SBF
@SBF_FTX
12) So in that case, you need something better than mid--you need to narrow it down within the spread. And the last traded price is a pretty reasonable way to do it.
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SBF
@SBF_FTX
12) Sure, your pricing might not be quite right--it could be worth $9300 now instead of $9400--but when a market is $10 @ $9500 your goal isn't "show the exact fair value". Your goal is "show something that's not totally insane". So once again our mark price is reasonable.
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SBF
@SBF_FTX
13) Now I don't want to claim that median(bid,ask,last) is the _perfect_ system. There are lots of others! Should you incorporate bid size? How about time since trade? Maybe!
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SBF
@SBF_FTX
14) But it shouldn't be an exchange's goal to do really complicated calculations to estimate fair values for customers--that's their job. The goal is to report accurate, timely, reasonable data that's easy to parse. Mark price is simple to understand and it's reasonable.
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