With this update, the number of collateral currencies you can use for margin and derivatives trading has increased to 52.
What is a collateral currency?
A collateral currency can be fiat, crypto or stablecoin you can use for trading on margin. Unlike standard spot trading, margin trading allows you to open long or short positions by borrowing funds directly from Kraken.
When you trade on margin, Kraken’s margin pool is used for the purchase or sale of the cryptocurrency, while your collateral secures the extensions of margin. The collateral currency you use does not need to match the trading pair of the order book you’re trading on, allowing for greater flexibility to go long or short in any margin enabled trading pair.
Note: Both unstaked and Kraken Rewards assets can be used as margin collateral. However, assets held in Kraken Pro on-chain staking are ineligible to use as margin collateral.
Maximizing the benefits of margin trading
Expanding the range of collateral currencies may empowers traders in several ways:
Tax advantages
In some jurisdictions, using digital assets as collateral rather than selling them outright can defer taxable events. By leveraging collateral currencies for margin trading, traders can potentially reduce immediate tax liabilities while maintaining exposure to their holdings.
Diversification of collateral
By using multiple collateral currencies, you can better manage risk and reduce exposure to volatility in any single asset. This is particularly valuable for traders seeking to safeguard their positions in unpredictable markets.
Improved liquidity
With more assets eligible as collateral, you can free up funds for other trading opportunities while maintaining robust positions on margin. This ensures your portfolio remains active and responsive to market changes.
Strategic flexibility
The ability to combine assets with different haircuts enables fine-tuned margin strategies tailored to your risk tolerance and market outlook. Whether you prefer conservative or aggressive trading, expanded collateral options provide the adaptability you need.
Hedging and short selling opportunities
With access to margin trading and a diverse range of collateral currencies, traders can hedge their existing positions or take advantage of downward market movements through short selling. This opens up opportunities for profit regardless of market direction.
Leverage and capital efficiency
Margin trading can amplify your buying power, allowing you to take larger positions than your available capital. This capital efficiency is further enhanced by the ability to use a broader range of collateral currencies, enabling you to maximize potential returns while optimizing resource allocation.
New collateral currencies
Here’s the list of the 8 new assets being added to Kraken’s margin collateral lineup, bringing the total to 52 options.
AssetHaircutSPX6900 (SPX)20%Algorand (ALGO)10%Ondo (ONDO)10%Fartcoin (FARTCOIN)20%Artificial Superintelligence Alliance (FET)10%Unisawl (UNI)10%Curve DAO Token (CRV)10%Ethena (ENA)10%
Understanding haircuts
When using a currency as collateral, Kraken applies a “haircut” to determine its effective value. This haircut reflects the percentage reduction applied to the asset’s value to account for potential price volatility.
For example, if you hold $1,000 worth of an asset with a 20% haircut, its collateral value is calculated at $800. This approach ensures greater stability and reduces the risk associated with using volatile assets as margin collateral.
What to keep in mind
It’s important to note that collateral assets used to open margin positions cannot be exchanged for other currencies or withdrawn while the position is open. These assets remain reserved as collateral and are visible in your account balance, but they are restricted from trading or withdrawals.
You can check the availability of your collateral assets at any time through the Funding tab in your Kraken account.
Ready to trade but don’t have a Kraken account yet? Sign up for Kraken Pro today !
Availability of margin trading services is subject to certain limitations and eligibility criteria . Trading using margin involves an element of risk and may not be suitable for everyone. Read Kraken’s Margin Disclosure Statement to learn more.
Investment services, ancillary services and investment activities (the “Services”) in relation to derivatives in the European Economic Area, are provided and carried out by Payward Europe Digital Solutions (CY) Limited. (“PEDSL-CY”). PEDSL-CY is authorised and approved by the Cyprus Securities and Exchange Commission (CySEC) with licence number 342/17. PEDSL-CY is registered in Cyprus with registered number HE 356603. Read our Risk Disclosure Statement to learn about the risks.
For any other markets, excluding the US, Payward Digital Solutions Ltd. is licensed to conduct digital asset business by the Bermuda Monetary Authority. Read Kraken Derivatives’ Risk Disclosure to learn more.
Trading derivatives and other financial instruments, including leveraged financial instruments, involves significant risks and is not appropriate for all investors. You could lose more than your initial investment.
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