Index Price
A reference price for an asset calculated by aggregating prices from multiple exchanges, used as a more manipulation-resistant benchmark than any single venue's price.
An index price is a reference price calculated by combining and weighting price data from multiple independent exchanges or liquidity sources, rather than relying on the price from any single venue. By aggregating across sources, an index price is intended to be more resistant to manipulation or temporary dislocation on any one exchange than using that single exchange's price directly.
Derivatives exchanges commonly use an index price as the basis for calculating a mark price (see Kaavon's "Mark Price" glossary definition), which in turn determines unrealized profit and loss and liquidation thresholds on leveraged positions — using an aggregated index rather than the exchange's own order-book price specifically reduces the risk that a brief, isolated price spike or wick on that one exchange triggers unwarranted liquidations across its users' positions.
Examples
- A derivatives exchange calculating its index price from several major spot exchanges is less vulnerable to a single exchange's temporary price glitch triggering unnecessary liquidations.
- The gap between an exchange's own order-book price and its index price can briefly widen during periods of unusual volatility or thin liquidity on that specific exchange.