Understanding the Difference Between Mark Price and Tradable Price on Our OTC Options Platform

In the crypto Options market, it’s common to encounter wide bid-ask spreads due to factors such as market liquidity, volatility, and varying demand for specific instruments. This spread can sometimes cause confusion when comparing the mark price and the price at which you can actually trade. Here’s a breakdown of what these terms mean and why the difference exists:

 

Mark Price 

The mark price represents the theoretical or fair market value of an Option. It is calculated based on several inputs, including:

• Underlying asset price

• Implied volatility

• Time to expiration

• Interest rates

The mark price serves as a reference point, reflecting the mid-market value of the Option in a neutral and objective manner. It’s not necessarily the price you’ll be able to buy or sell at but rather an indicator of where the market might value the Option under normal conditions.

 

Tradable Price

The tradable price, on the other hand, is the actual price at which you can execute a transaction. It’s influenced by the prevailing bid-ask spread, which represents the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask).

Due to the nature of OTC (over-the-counter) markets, where trades are conducted directly between parties rather than on a centralized exchange, bid-ask spreads can be wider. This results from various factors, including:

• Market liquidity: OTC markets may have fewer participants, leading to less competition and wider spreads.

• Risk management: Market makers adjust prices to account for their risk exposure when providing liquidity.

• Volatility: Higher market volatility typically results in wider spreads to account for increased risk.

 

Why the Differences Exists & Why It Matters

The difference between the mark price and tradable price ensures that both buyers and sellers can transact efficiently while market makers manage their risk. As a user, it’s important to understand that:

• The mark price provides a benchmark for evaluating the Options’ theoretical value.

• The tradable price reflects real-time market conditions, ensuring liquidity and facilitating your transactions. 

We aim to provide transparent pricing and strive to offer competitive spreads in the crypto Options market.