This article details the information and features available to assist with effective portfolio management.
The initial margin and maintenance margin required to open a position starts from 2%, which represents a maximum leverage level of 50x. The margin requirements are raised as position size increases and it is important to keep these values in mind when making calculations.
Complete details on initial margin and maintenance margin requirements can be found in our Margin Schedule.
Estimation of Portfolio Value
Portfolio value is calculated separately for each margin wallet by adding the account balance to the profit or loss from open positions held within the wallet:
Portfolio Value = Balance Value in USD + Profit or Loss from Open Positions
This calculation happens in real-time and you can view this on the Balances panel as the market moves.
We calculate the profit or loss from open positions based on our estimate of the current price of the instrument:
For inverse Futures, profit or loss is calculated as:
Profit or Loss from Open Positions = ( 1 / Entry Price - 1 / Current Price ) * Position Size
For linear Futures, profit or loss is calculated as:
Profit or Loss from Open Positions = ( Current Price - Entry Price ) * Position Size
We continuously update our estimates of current instrument prices based on current spot prices (as given by our real-time indices), and our estimate of the current forward premium or discount:
Mark Price = Index Price + Current Forward Premium or Discount
We calculate the current forward premium or discount as the percentage deviation of the instrument's current mid price from the spot price. The maximum permissible premium or discount is capped at 1% for Futures with 1 day to maturity and 20% for Futures with 210 days to maturity and is linearly interpolated in between (perpetual futures, which do not expire, have a premium cap of 1%).
Note that our estimate of current instrument prices is used only for margin management and does not affect your actual profit or loss once a position is closed out or settled.
What is Effective Leverage?
Effective leverage is the multiple of the position value compared to the portfolio value of the account, which includes unrealised profit or loss.
This means the leverage amount shown for an open position will change as the price changes because it represents "effective leverage".
How is Effective Leverage calculated?
Kraken Futures collateral margining has three distinct options:
- Single-Collateral - Cross Margin
- Multi-Collateral - Cross Margin
- Multi-Collateral - Isolated Margin
Cross margin uses the entire balance of the trading wallet as collateral for the position. This is in contrast to isolated margin, where the position is independent and only the collateral used to open the position is at risk.
The effective leverage is calculated by dividing the value of open positions by the total available equity of the account. In other words, the effective leverage is the amount of capital used compared to the amount in the futures trading wallet.
You can calculate the effective leverage for positions with the following formulae:
Single-Collateral Cross Margin:
(Position Size * Value of 1 contract) / (Portfolio Value in Base * Mark Price)
Multi-Collateral Cross Margin:
Sum of All Position’s Value at Entry / (USD Collateral Value - Isolated Initial Margin + Unrealised Profit/Loss* Isolated & Cross)
Multi-Collateral Isolated Margin:
(Position Value at Entry in USD) / (Isolated Margin in USD +/- Isolated Position's Profit or Loss*)
Note that when opening more than one position on different pairs with Multi-Collateral Cross Margin your collateral is shared between those positions and the effective leverage level will be higher for both.
For the “Position Size in USD” portion of the calculation you can add the value of two or more positions together to calculate the net result of effective leverage that multiple positions have on your account.
* For Multi-Collateral contracts, haircut applies to non-USD unrealised Profit and Loss
Portfolio Value & Collateral Value
Portfolio Value in the above calculations takes into account unrealised Profit/Loss of open positions. Portfolio value also includes unrealised Profit/Loss from the Funding Rate either being credited or debited throughout the hour when trading perpetual contracts. This changes the trading wallet balance which will also change the effective leverage.
The Portfolio Value calculation uses the index price for valuing each asset.
Portfolio Value = Balance Value in USD + Total Unrealised Profit/Loss in USD
Collateral Value refers to the USD value of balances in the account usable as margin. For Multi-Collateral futures, haircuts apply to non-USD collateral.
Collateral Value = (Balance Value in USD * Haircut)
Understanding why the Effective Leverage changes
When the price moves in your favour and your position is in profit, the effective leverage will be lower as the portfolio now has a higher value due to unrealised profit and thus a lower effective leverage ratio. The opposite is also true, when the price moves against your position the effective leverage will be higher as there is now less collateral available due to unrealised loss.
Effective Leverage Examples
Example of Effective Leverage, Single Collateral Cross Margin
You open a long position of 10,000 contracts on BTCUSD at $9000 USD. You have no other positions open, the current market price is $8000 USD and mark price is $7995. The quantity of BTC in your BTCUSD trading wallet is 0.25 BTC.
Effective Leverage = (Position Size * Value of 1 contract) / (Portfolio Value in Base * Mark Price)
- Position size = 10,000 contracts
- Mark price = $7995
- Portfolio value = Margin Acc. Balance + Profit or Loss from Open Positions
- Margin Acc. Bal. = 0.25 BTC
- Profit or Loss = (1/Futures Entry Price - 1/Futures Exit Price)*Position Size = (1/9000 - 1/7995)*10000 = -0.13967 BTC
- Portfolio value = 0.25 + -0.13967 BTC = 0.1103 BTC
Therefore, effective leverage = (10000 * $1 USD) / (0.1103 * 7995) = 11.34x
Example of Effective Leverage, Multi-Collateral Cross Margin
You open a long position of 1 BTC on BTCUSD at $40000 USD. You have no other positions open, the current market price is $40400 USD and mark price is $40402. The quantity of BTC in your Multi-Collateral trading wallet is 0.5 BTC and 1 ETH. The ETH market price is $3000. BTC has a collateral haircut of 4% and ETH has a collateral haircut of 6%.
Effective Leverage = Position Value at Entry / (Collateral Value - Isolated Initial Margin + Unrealised Profit/Loss Isolated & Cross)
- Position size = 1 BTC
- Mark price = $40402
- Position Value at Entry = $40000
- Collateral value = (Margin Acc. Balance * Haircut) + Unrealised Profit/Loss
- BTC = 0.5 * 0.96 = 0.48
- ETH = 1 * 0.94 = 0.94
- Margin Acc. Bal. = 0.5 BTC + 1 ETH
- Margin Value Haircuts =
- Margin Acc. Value in USD after haircut = (0.48 * 40400) + (0.94 * 3000) = $22212 USD
- Profit or Loss in Quote Currency = ( Futures Exit Price - Futures Entry Price ) * Position Size = (40402 - 40000)*1 = $402 USD
- Portfolio value = 22212 + 402 = $22614 USD
Therefore, effective leverage = (40402) / (22614) = 1.786592376403998, which the interface will truncate to 1.78x leverage.
Your position(s) may hit a margin threshold such as maintenance margin. In this case, some or all of your open positions may be liquidated.
Liquidations differ per wallet type, for details, see margining articles below:
See also Liquidation FAQ.
NOTE: Removing funds from a trading wallet that has open positions will raise the effective leverage level and may lead to liquidation.
Kraken Futures has multiple wallets:
- Multi-Collateral wallet
- The Multi-Collateral wallet is a single omnibus wallet that contains all available collateral currencies for trading MC contracts.
- Single-Collateral wallets*
- There are 5 Single-Collateral Trading wallets; 1 for each collateral asset. These trading wallets are isolated from each other and each collateral asset can only be used for trading SC contracts where they act as the base currency.
- Holding wallet*
- The Holding wallet is used to segregate funds from your trading wallets to ensure that funds inside it are not at risk when trading. Assets held in the Holding wallet are not active as collateral and must be transferred to a Trading wallet in order to open positions.
*Only available on legacy UI
For a guide on transferring funds between wallets, see: Funding your Futures account
NOTE: 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.