Interest and Conversions (Unified Wallet)

The Unified Balance Manager is Kraken's centralized balance tracking system that:

• Consolidates all your assets across spot and futures markets into a unified view
• Automatically converts currencies when you need collateral in a specific currency
• Manages margin borrowing seamlessly across your portfolio
• Calculates interest on borrowed funds transparently
• Optimizes collateral usage by considering all your holdings together

✓ Multi-Currency Support: Hold any supported asset as collateral
✓ Automatic Conversions: System converts currencies when needed
✓ Transparent Interest: Clear APRs displayed upfront
✓ Unified Margin: Use spot assets as collateral for futures positions
✓ Cross-Margining: Offset positions across different markets

When you trade or need collateral in a currency you don't currently hold, the system can automatically convert your available assets. This happens in several scenarios:

Automatic conversion triggers

1. Insufficient Collateral: When your USD (or primary currency) balance falls below margin requirements
2. Trade Execution: When you don't have enough of the required currency to complete a trade
3. Interest Payments: When you need to pay interest on loans but lack the required currency
4. Liquidation Prevention: To maintain adequate margin levels and avoid liquidation

Manual conversions

You can also initiate currency conversions manually through:

• The conversion API endpoint
• Your account dashboard
• Trading interface when placing orders

Step-by-Step:

1. Balance Check: System identifies available currencies in your wallet
2. Rate Lookup: Fetches current exchange rates (reference or mid rates)
3. Spread Application: Applies conversion spread to protect against price movements
4. Conversion Execution: Debits source currency, credits target currency
5. Ledger Recording: Records the conversion in your transaction history

Example:

• You need 1,000 USD but only have EUR in your account

• Your EUR Balance: 950 EUR

• Current EUR/USD Rate: 1.10

• Conversion Spread: 0.25%

• Amount Converted: 950 EUR

• Amount Received: 950 × 1.10 × (1 - 0.0025) = 1,042.38 USD

The system uses two types of exchange rates:

Reference Rates (Preferred)

Reference rates are institutional-grade prices that provide the most stable and fair valuation:

• Source: Aggregated from multiple high-quality exchanges and market makers
• Update Frequency: Every few seconds
• Characteristics: Time-weighted, manipulation-resistant
• Availability: Automatically used for eligible accounts

Reference rates are used when:

• Your account is enabled for reference rate access
• Converting for collateral valuation
• Calculating margin requirements
• Processing automatic conversions

Mid Rates (Fallback)

Mid rates are calculated from our internal order books:

Mid Rate = (Best Bid Price + Best Ask Price) / 2

• Source: Kraken's live order books
• Update Frequency: Real-time with every price change
• Usage: Standard accounts, or when reference rates are unavailable

To protect against adverse price movements during conversions, a small spread is applied:

Spread Calculation

The conversion spread varies by currency pair and market conditions:

BaseToQuote Conversions:

Converted Amount = Original Amount × Exchange Rate × (1 - Spread%)

QuoteToBase Conversions:

Converted Amount = Original Amount × Exchange Rate / (1 + Spread%)

Note: Actual spreads may vary based on market conditions, liquidity, and volatility.

Conversion fee structure

Standard Conversions:

• Applied as a percentage of the conversion amount
• Deducted from the target currency amount
• Displayed in your conversion history

Special Cases:

1. Same Currency: No conversion needed, no fee
2. USD Credit: No spread applied when converting against USD in certain contexts
3. Whitelisted Currencies: Reduced or no spread for specific approved assets

The Unified Balance Manager supports a wide range of currencies for conversions:

Major Fiat Currencies:

• USD, EUR, GBP, CAD, AUD, CHF, JPY

Stablecoins:

• USDC, USDT, DAI (regional restrictions may apply)

Cryptocurrencies:

• BTC, ETH, and hundreds of other supported crypto assets

Regional Considerations:

• Some assets may be restricted in certain jurisdictions (e.g., USDT in EEA territories)
• Conversion availability depends on asset liquidity and regulatory compliance

The system includes an intelligent auto-conversion feature to help prevent liquidations:

Auto-conversion trigger

When your collateral value approaches critical levels, the system may automatically convert other assets to the required currency:

Trigger Condition = (USD Balance + Unrealized PnL) < Trigger Threshold

Default Trigger: Typically around 120% of maintenance margin requirements

Conversion priority order

The system converts assets in order of:

1. Most liquid assets first (e.g., major cryptocurrencies)
2. Lowest haircut assets (to minimize collateral loss)
3. Largest balances (to minimize the number of conversions)
4. Whitelisted currencies (approved for auto-conversion)

Auto-conversion settings

Whitelisted Currencies: Only pre-approved currencies are automatically converted to prevent unwanted liquidation of specific holdings.

Conversion Amount: System calculates the minimum amount needed plus a small buffer:

Conversion Amount = Required Shortfall + Buffer

In the Unified Balance Manager, uncovered losses occur when you have:

• Negative USD balance from trading losses or withdrawals
• Unrealized losses on open positions
• Insufficient collateral to cover these negative amounts

Unlike traditional margin borrowing, UBM charges interest on uncovered losses rather than on explicit loans.

You may incur uncovered losses when:

• Trading losses push your USD balance negative
• Unrealized PnL from open futures positions is negative
• Withdrawing funds while holding positions with unrealized losses
• Fees and funding payments further reduce your balance
• Collateral is insufficient to cover the negative amounts

Interest calculation:

Interest is charged only on the amount exceeding your USD balance*

Formula:

Uncovered Loss = -(USD Balance + Unrealized PnL)

Interest-Bearing Amount = max(0, Uncovered Loss)

Hourly Interest = Interest-Bearing Amount × Hourly Interest Rate

Interest rate

• Expressed as a percentage per hour
• Starts at 0.00025% per hour
• Designed to incentivize reducing uncovered losses quickly.

Interest accrual and payment

Processing Schedule:

• Calculation Frequency: Every hour
• Charged On: Amount above USD Balance*
• Payment Method: Automatically deducted from available collateral or added to uncovered loss

*Certain stablecoins are treated as USD for interest calculation purposes. More details available here.

Payment methods

When hourly interest is due, the system processes payment as follows:

1. Collateral Conversion

• System automatically converts available collateral (BTC, ETH, etc.) to USD
• Conversion occurs to cover the interest payment
• Conversion spreads apply as described in the currency conversion section

2. Increased Uncovered Loss

• If insufficient collateral is available for conversion
• Interest amount is added to your uncovered loss
• This increases the base amount for future interest calculations

3. Account Log Entry

• All interest charges recorded in your account history
• Type: INTEREST_PAYMENT
• Shows: timestamp, amount, uncovered loss snapshot

Viewing your position

You can monitor your uncovered loss status through:

• Account balance API endpoints
• Futures trading dashboard
• Account history and ledger queries

Key Metrics Displayed:

• Current USD balance
• Total unrealized PnL from open positions
• Uncovered loss amount (if negative)
• Interest-bearing amount (amount above USD balance)
• Recent interest charges

Reducing or eliminating uncovered losses

Strategies to minimize interest charges:

1. Deposit USD or Stablecoins: Directly reduces negative balance
2. Close Losing Positions: Converts unrealized losses to realized, may trigger auto-conversion
3. Add Collateral: Deposit other assets (BTC, ETH) that can be converted to cover losses
4. Reduce Position Sizes: Lower exposure to reduce potential for growing losses

Automatic loss prevention

When you deposit funds or close positions:

• Positive realized PnL automatically reduces uncovered losses
• Deposits of USD or converted collateral reduce negative balance immediately
• System prioritizes bringing uncovered loss below threshold to eliminate interest

Multi-Collateral wallets

Features:

• Hold multiple currencies simultaneously
• All assets valued in USD for margin calculations
• Haircuts applied to determine collateral value
• Automatic conversions between currencies
• Interest charged on borrowed amounts

Best For:

• Diversified portfolios
• Traders holding multiple assets
• Users wanting flexibility in collateral

Single-Collateral wallets

Features:

• Hold only one currency (e.g., BTC or USD)
• No haircuts applied (0% haircut)
• No cross-currency conversions
• Margin requirements in native currency
• Interest charged in wallet currency only

Best For:

• Traders focused on one currency pair
• Users wanting to avoid conversion spreads
• Simplified accounting and tracking

Unified margin combines spot and futures positions into a single margin calculation:

Benefits:

• Use spot holdings as futures collateral
• Offset spot and futures positions
• More capital efficient than separate accounts
• Reduced margin requirements for hedged positions

Conversions in Unified Wallets:

• Spot and futures wallets aggregated
• All liquid assets available for conversions
• Conversions prioritize most efficient source
• Interest charged based on borrowing source

Scenario:

• You want to buy 0.5 BTC using USD
• You have 2,500 EUR but no USD
• BTC price: 50,000 USD

Process:

1. Trade requires: 0.5 × 50,000 = 25,000 USD

2. Your EUR balance: 2,500 EUR

3. EUR/USD rate: 1.10 (reference rate)

4. Conversion spread: 0.25%

5. EUR converted to USD: 2,500 × 1.10 × 0.9975 = 2,743.13 USD

Result:

Trade proceeds with available USD

Remaining needs borrowed: 25,000 - 2,743.13 = 22,256.87 USD

Loan created: 22,256.87 USD at current APR

Scenario:

• USD balance: -$45,000

• Unrealized PnL: -$5,000

• Total uncovered loss: $50,000

• Hourly interest rate: 0.01%

Calculations:

Total Uncovered Loss: $50,000

Interest-Bearing Amount: $50,000

Hourly Interest Charge: $50,000 × 0.0001 = $5.00

After 24 hours: $5.00 × 24 = $120.00

After 7 days: $120.00 × 7 = $840.00

After 30 days: $840.00 × 30 = $3,600.00

Scenario:

• USD balance: -$40,000

• Unrealized PnL: $0

• Uncovered loss: $40,000

• Interest due (hourly): $4.00

• BTC balance: 0.5 BTC

• BTC/USD rate: 50,000 USD

Process:

1. Uncovered loss: $40,000

2. Interest-bearing amount: $40,000

3. Hourly interest: $40,000 × 0.01% = $4.00

4. Insufficient USD to pay interest

5. System converts BTC to cover interest:

- USD needed: $4.00

- Conversion spread: 0.25%

- BTC needed: $4.00 / (50,000 × 0.9975) = 0.00008020 BTC

- BTC deducted: 0.00008020 BTC

6. Interest paid: $4.00 USD

7. Remaining BTC: 0.5 - 0.00008020 = 0.49991980 BTC

1. Maintain Primary Currency Balance: Keep sufficient USD (or primary currency) to avoid frequent conversions
2. Batch Conversions: Convert larger amounts less frequently rather than many small conversions
3. Monitor Rates: Convert during favorable market conditions when spreads are tighter
4. Plan Ahead: Anticipate currency needs before trading to avoid urgent conversions

1. Maintain USD Buffer: Keep some USD balance to absorb market drawdowns without going into uncovered loss territory.

2. Quick Recovery: If you have an uncovered loss, prioritize reducing it quickly to minimize interest duration.

3. Strategic Position Sizing: Size positions to limit the potential for large uncovered losses.

4. Close Losing Positions Promptly: Don't let unrealized losses accumulate

5. Add Collateral Preemptively: Deposit USD or convertible assets before an uncovered loss forms rather than after.

1. Diversify Wisely: Hold assets with lower haircuts for more efficient collateral
2. Monitor Margin Levels: Stay well above maintenance margin to avoid auto-conversions
3. Use Auto-Conversion: Enable auto-conversion for liquidation prevention
4. Review Holdings: Regularly assess which assets are most efficient as collateral

1. Set Alerts: Configure notifications for:
   
   Uncovered loss forming
   
   Interest charges accruing
   
   Large conversion events
   
   Low margin warnings
   
   Significant unrealized loss changes
   

2. Regular Monitoring: Check your account regularly for:
   
   Current USD balance (watch for negative balances)
   
   Unrealized PnL on open positions
   
   Total uncovered loss amount
   
   Recent interest charges (if any)
   
   Margin health metrics
   

3. Emergency Planning: Maintain:
   
   Backup funds for margin calls
   
   Understanding of liquidation thresholds
   
   Access to deposit methods for urgent funding

All conversions and interest payments appear in your transaction ledger with detailed information:

Conversion Entries:

• Type: LT_Conversion or LT_DerivativesFlexConversion
• Details: Source currency, target currency, amounts, rates, fees
• Timestamp: Exact time of conversion
• Reference ID: Unique transaction identifier

Interest Payment Entries:

• Type: LT_Interest
• Details: Loan ID, interest amount, outstanding balance
• Status: Pending (0) or Committed (2)
• Reference ID: Links to specific loan

Retrieve your conversion and loan history programmatically:

Endpoints:

• /GetLedgers: Full ledger history including conversions and interest
• /GetLoanHistory: Detailed loan and interest payment history
• /GetBalances: Current balances including loan amounts
• /GetConversions: Specific conversion history (if available)

Available Reports:

• Total interest paid per currency per period
• Conversion costs and spreads incurred
• Loan balance trends over time
• Effective borrowing rates

Q: Are conversions mandatory?

A: Conversions happen automatically when needed for trading or maintaining margin. You can also initiate manual conversions. To avoid automatic conversions, maintain sufficient balance in your primary trading currency.

Q: Can I choose which assets get converted?

A: The system automatically selects assets based on liquidity and efficiency. For manual conversions, you can specify the exact currencies and amounts.

Q: What if I don't want certain assets converted?

A: Assets are only auto-converted if they're on the whitelist for your wallet type. Contact support if you need to adjust conversion permissions for your account.

Q: Do I pay the spread on every conversion?

A: Yes, conversion spreads apply to protect against price movements. The spread is typically small (0.1% - 1%) and varies by currency pair and market conditions.

Q: How often is interest calculated?

A: Interest is calculated and charged every hour on uncovered losses

Q: Can interest rates change?

A: Yes, the hourly interest rate is a configurable parameter that can be adjusted by risk management. Changes apply to future calculations only, not retroactively.

Q: What happens if I can't pay the interest?

A: If you don't have sufficient collateral for conversion, the interest amount is added to your uncovered loss, increasing the amount that may incur future interest charges.

Q: Do I pay interest on weekends and holidays?

A: Yes, interest accrues hourly, 24/7/365, including weekends and holidays, on any uncovered loss.

Q: How can I see my current uncovered loss and interest rate?

A: Your current USD balance, unrealized PnL, and uncovered loss amount are displayed in your futures trading dashboard and available via API queries.

Q: Can I see historical interest charges?

A: Yes, all interest payments are recorded in your account ledger with type INTEREST_PAYMENT and include the timestamp, amount, and your uncovered loss at that time.

Q: Do I need to manually manage this?

A: The system tracks everything automatically. However, monitoring your position and addressing uncovered losses promptly is recommended to avoid growing interest charges.

Q: How do I reduce my uncovered loss?

A: You can deposit USD or other collateral, close losing positions, or reduce position sizes. Positive trading performance also naturally reduces uncovered losses.