What are Derivatives? (FAQ for clients in the EEA)

Trading Derivatives can be advantageous in a number of ways compared to trading the underlying asset directly:

However, trading Derivatives, derivatives and other instruments using leverage involves an element of risk. The value of Derivatives you enter into may fall as well as rise and you may get back less than your initial collateral, and in some cases you may lose your entire collateral balance.

Derivatives come with a perpetual, monthly, quarterly and semiannual* maturity schedule and can utilise Multi-Collateral wallets with isolated or cross margin. We offer linear contracts. 

For detailed information on listed contracts, see: 

*Semiannual contracts for FI_BTCUSD and FI_ETHUSD only

Note: The symbol XBT is used for Bitcoin for logs download and Derivatives API

Linear Derivatives have a payoff with a linear function, meaning that the price movement of the underlying asset has a direct correlation with the quoted value of the Derivatives contract.

For example, with a Bitcoin-Dollar linear derivative contract the profit or loss from a price increase or decrease is directly equal to the dollar increase or decrease of the contract itself. If you hold a long and the price increases by 10% your profit will be 10%, if you are short and the price goes down 10% your profit will be 10%

Multi-Collateral derivatives allow trading a wider variety of trading pairs with multiple assets as collateral. Similar to margin trading on Kraken’s spot exchange, your positions can be supported by cash.

Example Linear Derivatives:

You believe that the price of Solana will increase against USD and buy 1,000 Solana-Dollar (PF_SOLUSD) Derivatives at 85 SOL per USD. Multi-collateral linear Derivatives have a contract size of 1 base unit, in this case 1 SOL. The price of Solana actually increases and you are able to sell the Derivatives at 105. Your PnL is calculated as: 

( Exit price - Entry price ) * Position Size (105 - 85) * 1,000 = 20,000 USD

It depends on your trading objective. Our perpetual Derivatives can be used for keeping long term positions open, without the need to roll your position and these contracts tend to have the greatest liquidity. There is a funding rate associated with these contracts, which can be positive or negative. These contracts are available for multi-collateral derivatives. The fixed maturities (month, quarter, semiannual*) may better suit your needs for hedging purposes.

Your position will be cash settled at a rate representing the underlying spot market.

In mature financial markets, this price difference is determined by technical factors such as interest rate differentials, dividends or storage costs. In the case of Bitcoin and other digital assets, the price difference is mostly driven by supply and demand imbalances. For instance, bitcoin derivatives have often traded at a premium to the spot price in the past. This indicates that there is a high demand to buy Bitcoin on a leveraged basis.

If you offer to trade an instrument on the platform, this offer is matched by the trading system with another client's offer to take the other side of that trade. This means that Kraken Derivatives does not act as trade counterparty.

The respective venues where the contracts are listed have discretion over whether any offer to buy or sell is successfully accepted, matched or executed and it may choose at its discretion to refuse an order and such refusal is notified to you. This is to ensure that trades do not lead to market manipulation or other unfair circumstances.

No. However, if there is open limit order(s) on your account that would close the position if executed, then it is seen as the only closing order(s), therefore any other order in the same contract will be seen by the trading engine as a new position, thus requiring margin when the order is submitted. See order types for details.

No. While it is possible to have a long and a short position open simultaneously in different maturities, it is not the case for a long and a short position in the same maturity. For example, a long and short in PI_BTCUSD would not be possible simultaneously, but a long in the monthly and a short in the perpetual would be possible. If a trader had a long position of 20,000 contracts in PI_BTCUSD and attempted to enter a short position of the same size by executing a sell order of 20,000 contracts, then the long position would be closed upon execution of the sell order.

Open positions can be exited before maturity by submitting a buy or sell order that closes the position (i.e. if you have a long position you sell, if you have a short position you buy back). The party with which you do the exit trade will then take over your obligations in relation with your original counterparty.

Not in the same manner as other crypto derivatives exchanges. Our Equity Protection Process and Position Assignment System ensure liquidations never lead to negative balances without requiring an insurance fund or claw-backs. If you buy, we match you with a seller and if you sell, we match you with a buyer. If you make a profit, this profit will come from other traders' losses on the platform. As a neutral exchange, we manage the margin of counterparties in real-time and transfer any profit and loss. If a liquidation can not be filled, it goes through an orderly unwinding process that attempts to first assign it to a market maker and then terminate to avoid system losses as last resort. Thus, the risk management system is designed to not sustain losses that would require schemes like "claw-back".