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Differences in spot trading with and without the use of margin
Kraken is a "spot market" exchange for you to buy and sell currencies "on the spot". If eligible, Kraken also can extend margin to facilitate your ability to enter into spot purchases and sales of currencies on the Kraken spot market exchange with the use of “leverage.” To differentiate between the currencies you receive in spot transactions without margin and the currencies you receive in spot transactions on margin, we use “balances” for the former, and “positions” for the latter.
Balances
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Positions
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Going “long” vs. “short”
Traders can enter “long” and “short” positions by using margin. Entering a long position means you are purchasing an asset you don’t have, in anticipation of the price increasing. You could do this without margin if you use the funds in your balance to purchase it directly. Entering a short position means you are selling an asset you don’t have, in anticipation of the price decreasing. This is only possible with margin, because you are using margin to sell the asset which you don’t already own.
Electing to use margin on the spot exchange order forms
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Examples
Non-margined spot transaction:
Exchanging 500 USD in your account balances for 500 USD worth of ETH on the ETH/USD order book.
Spot transaction on margin:
Posting 500 USD worth of ETH as collateral for a 1500 USD margin extension from Kraken to you, which you use to buy 1500 USD worth of BTC on the BTC/USD order book. This is made possible by choosing 3:1 leverage on the trading pair. Note how the trading pair does not have to match the collateral currency.