A collateral currency is a currency that can be used as "collateral" for margin trading.
The collateral currency you hold does not have to match the margin pair you plan to trade. This is possible because all the funds for leveraged trades come from Kraken’s margin pools.
The collateral currencies on Kraken are:
Note: As of the September 27th, 2018 trading engine update, collateral currencies used to open a margin position can not be exchanged for other currencies or withdrawn while the margin position is open.
The collateral currencies available for futures trading are different. All of the futures pair currencies - XBT, ETH, LTC, BCH and XRP - are available as collateral currencies and are individualized per instrument on Kraken Futures.