THE FOLLOWING ARTICLE APPLIES FOR PURPOSES OF MARGIN CALCULATIONS ONLY. 

Kraken uses real-time indexes as a source for reference prices (instead of mid-prices on Kraken) to calculate your compliance with the Maintenance Margin Requirement, as well as for other purposes related to margin trading. This approach helps to avoid possible market manipulation, and to provide more stable pricing calculations in periods of extreme volatility. This calculation process is described in more detail below. 

Kraken calculates user equity, account balances, collateral and profit and loss (PnL) using an internally developed real-time reference price or a real-time, regulated CFBenchmark index price if available - see Reference Price Sources below. 

Suppose you begin with a 10,000 USD trade balance and use a margin extension to purchase 1 BTC at a price of 45,000 USD.

Two days later:

BTC/USD mid-price on Kraken is 49,995 USD.

BTC/USD reference price is 50,000 USD.

Kraken will determine the value of your unrealised PnL using the relevant reference price, such that your unrealised profit will be 5,000 USD. Your account equity value will then be 10,000 + 5,000 = 15,000 USD.

The closing of your position either through direct user action or liquidation, however, is subject to the available liquidity and prices on the Kraken orderbook, not the reference price.

Methodology

Internal reference price methodology: 

Reference prices are calculated using a methodology designed to ensure the most important characteristics of reference prices are delivered:

Representative:

• To help ensure data is timely and not stale, order data is used instead of trade data to give continuous and instantaneous pricing
• Order prices are taken from multiple liquid exchanges and consolidated to give a view across the broader market; where indirect markets are used, such as stablecoin pairs, prices are translated into USD before being added
• Only the orders close enough to the mid, and thus likely to be executed, are taken to compute reference prices through a volume-weighted method

Robust:

• The reference price methodology has been in continuous use for real-time crypto valuations since 2017 with many refinements along the way
• Reference prices and underlying exchange markets are continuously monitored to help ensure operational soundness
• Reference prices are calculated using multiple technology environments to mitigate against technology failures

Manipulation Resistant:

• To help ensure that reference prices are manipulation resistant a series of safeguards are employed that discard stale and overly deviated data
• Orders that are not likely to be executed due to their distance from mid are also discarded in the calculation
• To mitigate against outsized orders influencing the reference price all valid orders received for any individual reference price calculation are screened and have their size capped to a value that is determined by the statistical distribution of orders for that specific calculation

For CFBenchmarks methodology, please see their official documentation - Real Time Indices

Reference Price Sources

The decimal and thousands separators shown in this article may differ from the formats displayed on our trading platforms. Review our article on how we use points and commas for more information.