Introduction to Index Pricing
Index price represents the weighted sum of prices from the top 6 spot trading pairs across major exchanges (denoted as .XXXUSDT, where XXX is the token abbreviation like BTC, ETH, etc.). This benchmark is critical for derivatives pricing in:
👉 Perpetual contracts and futures trading
👉 Margin and liquidation calculations
Three core variables determine the index price:
1. Spot price
2. USDT equivalent price conversion
3. Real-time weight allocation
Core Components of Index Calculation
1. Spot Price
The real-time market price of an asset directly sourced from exchanges.
2. USDT Equivalent Price Conversion
Converts non-USDT pairs (e.g., ETH/BTC) into USDT values using cross-rates.
Example:
– ETH/BTC spot price: 0.1
– BTC/USDT price: $20,000
– USDT equivalent: 0.1 × 20,000 = $2,000
3. Real-Time Weight Allocation
Weights are assigned based on each exchange’s 24-hour trading volume (Trade_WtO). The top 6 exchanges (A–F) contribute proportionally:
Formula:
Index Price = (A_price × A_weight) + (B_price × B_weight) + ... + (F_price × F_weight)
Price Stability Mechanisms
To mitigate volatility, exchanges implement safeguards:
- Price Deviation Filter:
- Excludes exchanges if their price deviates >5% from the median (1% for BTC/ETH).
-
Weights redistribute to remaining valid sources.
-
Liquidity Check:
-
Data older than 15 minutes is discarded to avoid stale prices.
-
Extreme Market Adjustments:
- Platforms may manually override calculations during crises.
Example Scenario:
| Exchange | Pair | Price | Weight |
|———-|————|———|——–|
| A | BTC/USDT | $20,046 | 20% |
| B | BTC/USDC | $20,048 | 15% |
| … | … | … | … |
Calculated Index:
($20,046×0.20) + ($20,048×0.15) + … = $20,052.95
Special Cases
Extreme Market Conditions
When spot prices become unreliable:
– Index derives from perpetual contract trades over 10-second windows:
Index_Tn = 0.1818 × Target_Price_Tn + (1-0.1818) × Index_Tn-1
Target Price Determination:
– Uses depth-adjusted mid-price from order books:
1. Calculate premium/imbalance thresholds.
2. Compute weighted buy/sell prices.
3. Apply 2% bounds around best bids/asks.
👉 Learn advanced hedging strategies
Pre-Market Perpetual Contracts
- Auction Phase: Index = Estimated opening price.
- Trading Phase: Follows standard index rules.
FAQ
Q1: Why exclude exchanges with >5% deviation?
To prevent outlier prices from skewing the benchmark.
Q2: How often are weights recalculated?
Every 24 hours based on rolling volume data.
Q3: What happens if all exchanges deviate?
Weights proportionally shift to the least deviant sources.
Q4: Can manual overrides occur?
Yes, during systemic anomalies (e.g., exchange outages).
Q5: Why use USDT equivalents?
Ensures uniformity across multi-currency pairs.
Q6: How does depth-adjusted pricing work?
It aggregates liquidity across order book tiers to reflect true executable prices.