With this update, the number of collateral currencies you can use for margin trading increases from 23 to 38, offering a broader range of assets to integrate into your trading strategies.
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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 empowers traders in several ways:
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 lets you 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.
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.
New collateral currency choices
Here’s the list of the 15 new assets being added to Kraken’s margin collateral lineup, bringing the total to 38 options.
Asset****HaircutAAVE20%DOGE20%FTM30%NEAR30%PAXG5%PEPE30%RENDER30%RUNE30%SHIB30%STX30%SUI30%TAO30%WIF30%XLM10%XRP10%
In addition to the above, we have also reduced the haircut size for AVAX, XTZ & TRX from 50% to 30%
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 instance, 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.
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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.
Trade with caution. There is no guarantee that a limit order will execute. There is no guarantee of margin pool availability at all times. There is also no guarantee of a market order executing at a certain price. The availability and liquidity of the particular digital asset will impact these types of orders.
These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, stake, or hold any cryptoasset or to engage in any specific trading strategy. Kraken makes no representation or warranty of any kind, express or implied, as to the accuracy, completeness, timeliness, suitability or validity of any such information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Kraken does not and will not work to increase or decrease the price of any particular cryptoasset it makes available. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your cryptoassets and you should seek independent advice on your taxation position. Geographic restrictions may apply.
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