Why does MEXC employ fair prices to calculate the PnL and liquidation?
Forced liquidation is often a trader’s biggest concern. MEXC's perpetual contracts use a uniquely designed, fair price marking system to avoid unnecessary liquidation on highly leveraged products. Without this system, the mark price may deviate greatly from the price index due to market manipulation or illiquidity, resulting in unnecessary liquidation. The system therefore uses a calculated fair price instead of the latest transaction price, thereby avoiding unnecessary liquidation.
Fair Price Marking Mechanics
A perpetual contract’s fair price is calculated with the capital cost basis rate:
Funding fee basis rate = fund rate * (time till the next payment of funds / time interval of funds)
Fair price = Index price * (1 + capital cost basis rate)
All automatic deleveraging contracts use a fair price marking method, which only affects the liquidation price and unrealized profit, and not the realized profit.
Note: This means that when your order is executed, you may immediately see positive or negative unrealized gains and losses because of a slight deviation between the fair price and the transaction price. This is normal and does not mean that you have lost money. However, do pay attention to your starting price and avoid premature liquidation.