Margin
The availability of margin trading services is subject to certain limitations and eligibility criteria.The margin in your account is the amount of funds that are currently available to be used — “free margin” — or the funds currently used by a position — “used margin”. Margin is not deducted from your balance, but once margin is tied to a position it is not available for opening other positions, spot trading or withdrawal.
All funds used to open the position come from Kraken’s margin pool. The used margin can be thought of as a form of collateral, set aside from your balance in case the position falls to the point of liquidation. However, keep in mind that your loss on the position can be larger than the used margin.
If you open a $5,000 long position in BTC/USD with 5:1 leverage, your used margin for the position is $1,000. But if you later close this position for Profit/Loss (P/L) -$2,000, you have lost $2,000 - twice as much as the margin.
The Kraken margin product has been designed to protect the integrity of the Kraken margin pools for the benefit of all Kraken clients. The goal behind building in self-executing triggers (liquidations) is to preserve the Kraken margin pools so that our assets remain available to all Kraken clients. Liquidations also serve as a mechanism to help avoid a situation in which clients are required to repay a negative balance with funds in excess of those currently in their Kraken accounts.
It is important to note that margin is not the same as equity. Equity is the combined value of your collateral currencies and P/L, and margin level is your equity divided by used margin, expressed as a percentage.
Example Scenario
Suppose you currently hold 5,000 USD in your account balances. You have opened a long position with 5:1 leverage worth 15,000 USD. The used margin for this position is 3,000 USD since 15,000 divided by the leverage amount (5) is 3,000. Your account now has 2,000 USD remaining in free margin. This means you are capable of opening additional positions valued up to 10,000 USD using 5:1 leverage (the maximum leverage amount). Let’s assume the position has been open for a short time and has achieved 5% profit. To determine your margin level at this moment, the system performs the following calculations.
Solving for Equity:
Equity = Trade Balance + Profit/Loss
(Trade Balance is your total collateral holdings, used and unused)
(Trade Balance is your total collateral holdings, used and unused)
Equity = 5,000 USD + ((5 / 100) × 15,000 USD)
Equity = 5,000 USD + 750
Equity = 5,000 USD + 750
Therefore, Equity = 5,750
Solving for Margin Level:
Margin Level = (5,750 ÷ 3,000) × 100
Margin Level = 1.916 × 100
Margin Level = 1.916 × 100
Therefore, Margin Level ≅ 191.6%
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.
Margin trading examples
Here are some examples to help tie everything together.
Suppose you fund an account with $5,000 and open a $10,000 short position using 5x leverage with the price of BTC/USD at 50,000. As a short position, this would use 0.2 BTC from the Kraken Margin Pool. Your margin is is one-fifth of the funds used for the position, so 0.04 BTC, or $2,000 at the current BTC/USD price. The margin level when you open the position is ($5,000 ÷ $2,000)×100 = 250%.
If the price rises to 65,200, your position has an unrealized loss of $3040 and your equity would be $5,000 - $3040 = $1960. Because your Used Margin is in terms of BTC, your Used Margin in terms of USD would be 0.04 BTC * 65,200 BTC/USD = $2,608.
Your margin level would then be ($1,960 ÷ $2,608)×100 = 75%. At this level, you are below the margin call level and are in danger of being liquidated. When a liquidation occurs, your oldest position will be closed first, followed by newer positions (FIFO). All open positions are vulnerable to liquidation, regardless of the currency pair or unrealized profit/loss.
As you can see from this example, it's possible to open a position twice as large as your account balance and still be able to endure a sizable loss before margin call. Your own risk management on this trade should have you closing your position well before margin call, but it's good to understand what the limits are.
Let's see what happens in the example above had 2x leverage been used instead of 5x. With 2x leverage the margin for the position is 0.1 BTC, which would correspond to $5,000 at the price of 50,000 BTC/USD. So as soon as the position is opened the margin level is 100%. The system might let you open this position (though it wouldn't let you open a position where your margin level starts below 100%), but it wouldn't be a good idea to open a position where your margin level starts so low because you are already close to being liquidated. In this example if the price rises, to 54,500 BTC/USD, your position would have an unrealized loss of $900 and would bring your margin level to 75% where you are in danger of being liquidated. More leverage could be used so the margin level starts higher and a stop should be set on the position so that the position is closed well before there is any danger of margin call.
While positions will be sent for liquidation based on FIFO, multiple pairs might have different execution times as time priority for fill will be per order book.
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.
How leverage works in spot transactions on margin
Spot transactions on margin allow you to make spot purchases and sales of cryptocurrencies, on the Kraken exchange, using funds that exceed the balance of your account. Leverage, in this context, determines two things:
- 1.Your used margin following an extension of margin.
- 2.The maximum amount of margin Kraken will extend to you for a spot transaction on margin (your maximum “position size”).
- •
Used margin
Used margin is the amount of your collateral balances that is withheld in order to enter a spot transaction on margin. Used margin is calculated as the size (or "cost basis") of the margin extension provided to you divided by the level of leverage selected.Let's say you purchase 5,000 USD worth of BTC on the BTC/USD order book using an extension of margin. With 5x leverage, only one-fifth of the position size, or 1,000 USD worth, will be withheld from your collateral balance upon purchase of the BTC. With 2x leverage, half of the position size, or 2,500 USD worth, will be withheld from your collateral balance upon purchase of the BTC.Without any leverage, you would need a 5,000 USD balance to make this purchase, and this balance would be exchanged directly for the equivalent amount purchased in BTC.
- •
Maximum position size
The possibility of larger profits along with the risk of larger losses (and liquidation) is determined by the size of your open positions relative to your collateral balance and not merely by the level of leverage you select.When placing a margin trade, position size is selected separately from the leverage level. Selecting 5x leverage does not mean that your position size is automatically 5x bigger. It just means that you can specify a position size up to 5x your collateral balances. - •
How much leverage should be used?
Assuming the same position size, a higher level of leverage leaves more free margin in the account and thus has a larger buffer from liquidation. However, if the position size is maximized based on the leverage selected, then a higher leverage level would be more risky.
Opening cost
Opening cost is the sum of amounts paid to open all currently open positions.
If you open a long BTC/USD position for 3,000 USD and later open another long BTC/USD position for 2,000 USD, your opening cost is 5,000 USD.
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.
Current Valuation
Current valuation is the sum of the current value of all open positions.
If you have one position with a current value of 2,500 USD and another with a current value of 2,100 USD, your current valuation is 4,600 USD.
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.
Trade Balance
Trade balance is the combined total value of all collateral currencies in your account.Trade balance is always expressed in terms of the quote currency for the selected currency pair. As a result, your trade balance will fluctuate with exchange rates between currencies.For example:
•If BTC/USD is the selected currency pair, the trade balance will be in USD.
•If BTC/EUR is the selected currency pair, the trade balance will be in EUR.
Profit/Loss
Profit/Loss is the total "paper" (or unrealized) profit or loss for all open positions. It does not include trading fees. Unrealized Profit/Loss on open positions uses the real-time index price for that pair.
- •For long positions, you have an unrealized profit if your opening cost is lower than the current valuation. On the other hand, you have an unrealized loss if your opening cost is higher than the current valuation.
- •For short positions, you have an unrealized profit if your opening cost is higher than the current valuation. On the other hand, you have an unrealized loss if your opening cost is lower than the current valuation.
The unrealized profit or loss does not affect your currency balances until the positions are closed. However, any unrealized loss will cause the same amount to be withheld from your Trade Balance. Withheld funds are unavailable for withdrawal or trading.
Example of Calculating Profit/Loss
Suppose you have two short positions open.
One has an opening cost of $3,000 and a current value of $2,500. This position has a paper profit of $500.
The other has an opening cost of $2,000 and a current value of $2,100. This position has a paper loss of $100.
Your total profit on the two positions is $400.
Equity
Equity is your account trade balance plus (or minus) paper profit (or loss).Suppose you begin with a 10,000 USD trade balance and open a BTC/USD position for 5,000 USD.If this position later has a paper loss of 750 USD, your account equity will be 10,000 - 750 = 9,250 USD.
Used Margin (Initial Margin)
Used margin* is the amount of your trade balance that is initially withheld when you open a spot position on margin. Unlike free margin, used margin does not count unrealized profits/losses.
When you close, or partially close, the position; the used margin will decrease proportionally.
Used margin is calculated as the fraction of the funds from Kraken’s margin pool that are needed to maintain an open position.
Leverage Level | Used Margin |
|---|---|
2x | 1/2 of the funds used |
3x | 1/3 of the funds used |
4x | 1/4 of the funds used |
5x | 1/5 of the funds used |
For example, if you buy 0.1 BTC for 5,000 USD (the price is 50,000 USD per BTC), you have used 5,000 USD from Kraken’s margin pool:
- •At 5X leverage, your used margin is 1,000 USD.
- •At 4X leverage, your used margin is 1,250 USD.
- •At 3X leverage, your used margin is 1,667 USD.
- •At 2X leverage, your used margin is 2,500 USD.
If you sell 0.8 ETH for 2,400 USD (the price is 3,000 USD per ETH), you have used 0.8 ETH from Kraken’s margin pool:
- •At 5X leverage, your used margin is 0.16 ETH.
- •At 4X leverage, your used margin is 0.2 ETH.
- •At 3X leverage, your used margin is 0.2667 ETH.
- •At 2X leverage, your used margin is 0.4 ETH.
Note that since the Used Margin here is in terms of ETH, the USD value of the Used Margin will depend on the ETH/USD price.
*Availability of margin trading services is subject to certain limitations and eligibility criteria.
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.
Free Margin (Available margin)
Availability of margin trading services is subject to certain limitations and eligibility criteria.
Free margin is the amount of your trade balance that is available for opening new spot positions on margin.
Free margin is calculated as equity minus used margin.
For example,
- •With equity of 8,750 USD, and
- •used margin of 2,500 USD,
- •free margin would be 8,750 - 2,500 = 6,250 USD.
This error will also show when open orders are locking up collateral. In this case closing open orders may allow you to open the position.
Margin level (Margin health)
- •
What is margin level?
Margin* level is the percent ratio of your account equity to used margin. It helps you calculate how much money you have available for margin trading. The higher your margin level, the more cash you have on hand to trade.If your margin level drops below 100%, you may not open new spot positions on margin until your margin level is back over 100%. If your margin level drops to 80% or lower, your positions may be forcibly closed or “liquidated” (see "margin call level" and "margin liquidation level"). It is your responsibility as a trader to proactively monitor your margin level. - •
What is equity?
This is the sum of your collateral holdings (or “trade balance”) plus or minus any paper profit or loss on open positions. - •
How is margin level calculated?
Margin level is calculated as:Margin level = (equity ÷ used margin) × 100 - •
Example
If your account equity is $8,000 and your used margin is $2,000 then your margin level is 400%. Margin level is very important because it tracks your margin trading potential and the overall status of your open spot positions on margin. If it falls to 100% you will not be able to open new positions and if it falls more, some of your spot positions on margin may be automatically closed. If your margin level is getting close to 100%, you can raise it, either by adding collateral funds to your account to increase equity or by closing some open spot positions on margin to reduce used margin.
Order Position vs Trade Position
A single margin order can create multiple trade positions depending on how many trades are used to fill the order.
The order position consolidates all the trade positions under a single position so it's easier to see the net result of the margin order.
Order positions can be seen under Trade > Positions page in your account. All order positions begin with "O".
Trade positions can be seen by clicking on the order position's ID and then navigating to the trade positions tab.
Margin cost
The margin cost for a position is the amount of margin tied to the position.
The amount of margin tied to the position is usually the initial margin.
However, the amount tied to the position can change with conversion rates between currencies or it can decrease if part of the position is closed.
Maintenance Margin
Maintenance margin is the amount of account equity required to avoid a margin call. If your equity falls below the maintenance margin, your positions will be liquidated in order to pay back the Kraken Margin Pool assets that you used to open your spot position on margin.
When your margin level is 100% your trade balance is fully leveraged. You will not be able to open new spot positions on margin.
When your margin level is between ~40-80%, liquidation is at Kraken’s discretion and all or a portion of your account may be liquidated; you may receive, but are not guaranteed, a margin call email.
When your margin level reaches ~40% or lower, liquidation is certain. The liquidation process is automatic, and once initiated cannot be stopped.
By agreeing to our Terms of Service, you authorize and instruct Kraken to liquidate your funds in the conditions and manner described above.
Position
By using an extension of margin* from Kraken, you incur corresponding obligations and agree to comply with certain conditions until those obligations are satisfied. We refer to those circumstances where you have entered into a spot transaction on margin, but not yet satisfied these corresponding obligations, as an “open position.”
Once a position is open, the amount of funds used as collateral are not available for trading or withdrawal until the position is closed. As a result, when you enter into spot purchases or sales of cryptocurrency using margin on Kraken, the assets you receive from the market are reflected in your “positions” tab, which is separate from your “balances” tab. See “Differences in spot trading with and without the use of margin.”
Although reflected in this separate, “positions” tab, when you use margin on Kraken you are using an extension of margin to make an actual spot purchase or sale of cryptocurrency to a counterparty on the Kraken spot market exchange. You own and control the assets you receive in these margined spot transactions and can withdraw them from your Kraken account at any time subject only to the restrictions set forth in our Terms of Service.
*Availability of margin trading services is subject to certain limitations and eligibility criteria.
Hedging
Hedging is an attempt to mitigate the risk of an investment by investing in an opposing one.
In this way, it can be thought of as a type of insurance. When you "hedge positions", you’re attempting to open both “long” and “short” spot positions on margin in the same order book.
We do not allow direct hedging
You cannot have both long and short positions on margin open at the same time in a single currency pair. All long spot positions on margin must be closed before a short spot position on margin can be opened (and vice versa). See Flipping Positions.
However, you can have multiple long spot positions on margin or multiple short spot positions on margin.
We do allow indirect hedging
It is possible to hold spot positions on margin in different directions for the same asset, so long as the positions are opened on different order books.
For example, you could be “long BTC” on the BTC/USD order book by purchasing BTC for USD using margin while simultaneously being “short BTC” on the BTC/EUR order book by selling BTC for EUR using margin.
Closing or settling multiple spot positions on margin (FIFO)
Closing multiple open spot positions on margin
When trading using margin, you agree to close your open positions on a “First in First Out” (FIFO) basis. This means that if you have multiple positions open in the same currency pair, the position opened first will be closed first. Suppose you opened two “long BTC” positions, by purchasing 1 BTC on margin each time. If you then enter into a closing transaction to sell 1 BTC, the long BTC position that will be closed will be the one that was opened first.
If you use the closing order tool (shown below) at the bottom of your open positions list, the different volume settings will have the following results:
- •100% volume: creates a limit order that, if filled, will close all your open positions. It does not matter what level of leverage you select for this closing order.
- •50% volume: creates a limit order that, if filled, will close 50% of your open positions by volume, starting with your oldest positions. It does not matter what level of leverage you select for this closing order.
- •25% volume: creates a limit order that, if filled, will close 25% of your open positions by volume, starting with your oldest positions. It does not matter what level of leverage you select for this closing order.
- •200% volume: creates a limit order that, if filled, will close all your open positions and create an opposing position of the same volume (i.e. close a 1 BTC long position and open a 1 BTC short position). The leverage level does matter for this order, since the newly opened position will use leverage at the level selected in the order. This is also referred to as “flipping” a position.
Note that you can enter a different volume amount or select a different order type in the order form if you want to do something different from the four options above.
Settling multiple open spot positions on margin
The FIFO rule also applies to positions you close through settlement. This means that if you have multiple positions open in the same currency pair, the position opened first will be settled first. Suppose you opened two “long BTC” positions, by purchasing 1 BTC on margin each time. If you then do a Buy Settle Position order for 1 BTC, the long BTC position that will be settled will be the one that was opened first.
If you use the settle order tool (shown below) at the bottom of your open positions list, the different volume settings will have the following results:
- •100% volume: creates a settle order that will settle all your open positions. It does not matter what level of leverage you select for this settle order.
- •50% volume: creates a settle order that will settle 50% of your open positions by volume, starting with your oldest positions. It does not matter what level of leverage you select for this closing order.
- •25% volume: creates a settle order that will settle 25% of your open positions by volume, starting with your oldest positions. It does not matter what level of leverage you select for this closing order.
- •200% volume: you can’t settle more than 100% of your open positions, so this will create an order that will settle all your open positions (the remaining volume of the order will be canceled). It doesn't matter what level of leverage you select for this settle order.
Note that you can enter a different volume amount for the order if you wish.
Real-time index reference prices
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.
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 trading platforms 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 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
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.
Terminology used on the Overview page
This guide explains the terms used in the overview of your account. You can access this section by clicking on the Kraken logo in the upper left corner of the interface.
Trade Balances
Trade Balance = the total value of your collateral currencies
- •If you hold collateral currencies other than USD, your trade balance will fluctuate with exchange rates, which will also affect your equity, free margin and margin levels.
Equity = trade balance + unrealized profit/loss
Used Margin = opening cost ÷ leverage
- •Used margin is how much of your trade balance is withheld for open and maintaining spot positions on margin.
Free Margin = equity - used margin
- •Free margin is how much room you have for opening new spot positions on margin.
Margin Level = equity ÷ used margin × 100
- •Margin level is how close your spot positions on margin are to being liquidated.
Position Valuation
Opening Cost = opening price × open volume
Current Valuation = current price × open volume
Profit/Loss = current valuation - opening cost
- •Profit/Loss is how well your spot positions on margin are performing. It does not include trading or margin fees.
Profit/Loss (%) = Profit/Loss ÷ opening cost × 100