ANNOUNCEMENT: Kraken now supports cryptocurrency Futures trading.
Kraken is both a "spot exchange" for exchanging between currencies you own, and a forex-like market for margin trading on leverage.
Spot Exchange (Balances)
While utilizing Kraken as a "spot exchange", you must have adequate balances in one currency to exchange for another. For example, depositing USD in order to exchange for XBT on the XBT/USD pair.
After executing a spot exchange between currencies the balances are available to be exchanged again or withdrawn.
When using the Intermediate or Advanced order form, if you select "None" for leverage, then you are spot exchanging between currencies and must have adequate balances in one of the pairs. For most spot exchange orders, the Simple order form is sufficient.
For more information on Spot Exchanging, see: "Introduction to trading on Kraken".
Margin Trading (Positions)
With margin trading, you do not need to "own" or have possession of the underlying asset to enter a contract. We provide the funding for you to trade against other assets, at a leverage ratio of up to 5:1.
When using margin you are only required to hold collateral currencies and are able to trade any of the margin pairs even if you do not hold the currency on that pair. This is possible because when trading with leverage, Kraken provides the necessary funds for the entire value of a trade.
Once a position is open, the amount of funds used as collateral are not available for trading or withdrawal until the position is closed.
Margin trading does not result in an exchange of currency in your account. The funds required to open the position also do not appear in your account, Margin trades appear as a "position". All profit or loss from the position is unrealized until you close the position, at which point adjustments to your balances will be made to account for the profit or loss.
While it's possible to go "long" without leverage, trading "short" is only possible with leverage, which means it's only possible on margin pairs.
When using the order forms, if you select a level of leverage (2, 3, 4, 5) then you are opening a margin position with Kraken’s funds. Leverage can only be selected from the Intermediate and Advanced order forms.
Note: Some pairs are only available for spot exchanging and not leveraged trading — you will not be able to select leverage for pairs that are spot exchange only.
For more information on Margin Trading, see: Leverage and Margin.
Summary
A "Spot Exchange" is exchanging one currency you own for another.
A "Margin Trade" involves leveraging the collateral in your account in order to open a position to short or long a currency against another currency in hopes of profiting from short-term price swings.
Examples
Spot Exchange:
Exchanging 500 USD for ETH on the ETH/USD trading pair.
Margin Trading:
Using 500 USD as collateral in order to leverage 1500 USD worth of BTC from Kraken and short it on the BTC/EUR trading pair using 3:1 leverage. Note how the trading pair does not have to match the collateral currency.