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Margin Trading Bitcoin on Kraken

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Table of Contents

Introduction

Margin Trading is the borrowing of funds to buy assets. In this case we’re borrowing from Kraken and the funds come from their own operating account. Leverage allows a trader to open a position that is larger than the balance of their account. This means you can magnify gains, but also amplify your losses. The collateral or margin currency is the currency used as “collateral” for margin trading. This collateral is often referred to as “the margin”.  Margin trading allows you to take up long and short positions on cryptocurrency.

Margin Trading on Kraken

O.k, so let’s go long on Bitcoin. To do this we’re going to open a leveraged buy using 5x leverage. In effect, we’re multiplying our buying power by a factor of 5.

  1. Log into your kraken account.

  2. Select Trade – > New Order -> Kraken Pro. This opens up the Kraken trading platform.

  3. Select the currency pair. In this case, we are trading BTC/EUR,

  4. On the right of the screen in the trading window, select the following:

      1. Action: buy

      2. Type: Limit

      3. Leverage: 5

      4. Enter the Amount and Price

      5. Create a Conditional Close Order ( stop loss or take profit). It’s advisable to set a stop to limit losses

      6. Select Buy

  5. You can now see the Order at the bottom left corner of the screen

  6. Once the market price reaches your limit price the order is executed and the position is open. In this example the limit price was €7209.

  7. To close the position you can select to Close or Settle. See below for the difference between closing and settling. After 10 mins we closed this one out in the green.

What are the fees for margin trading on kraken?

In addition to the normal trade fees, there are margin specific fees for opening and rolling over a position.

For example, for bitcoin, the opening fee is 0.01% (% of the total value of the order) and the rollover fee every 4 hours is 0.01%. See more here.

Which currencies can you trade with leverage on Kraken?

Bitcoin, Ethereum and Ripple up to 5x. See the full listing here

How long can positions be kept open for?

Outside the US, Margin positions held past 365 days will be automatically liquidated.

Accounts registered in the United States (US) are limited to a 28-day maximum for maintaining open margin positions.

How do you close a position?

You can close a position by executing an opposing leveraged order for the same volume as your opening order (a sell closes a long and a buy closes a short).

In Kraken Pro, there are two convenient buttons to quickly close or settle an open position. 

Closing returns the borrowed funds back to Kraken, and any profit (or loss!) is added to (or taken from!) your Kraken account balance.

Settling a position returns the borrowed funds directly from your account balance (assuming you have the funds).  This allows you to exit your margin position at the original opening price and with no trading fee.

What about margin calls?

A margin call occurs when the account value falls below the broker’s required minimum value. Basically, this means that the crypto held in the margin account has decreased in value below a certain point. The trader must then either deposit more funds in the account or sell some of the position. 

The Kraken margin call level is 80% approx (varying depending on currency).

The margin liquidation level is about 40%.

Margin Call Level notifications are sent by email but are not always guaranteed according to Kraken.

Conclusion

This article gives a very quick intro to margin trading.  Margin trading cryptocurrency is definitely one of the riskiest trades you can take. It’s also potentially very profitable provided the market moves in your favour. Having a solid risk management plan before jumping in is advisable.

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Bryan

Bryan

Based in Ireland, Bryan is the founder and CEO of Boinnex. He has worked for almost a decade as an IT Project Manager contracting across finance, banking, insurance, tech, and healthcare industries. He found his way into the crypto space in 2017 when he started a contract role with IOHK — the dev company behind the Cardano blockchain. Since then, he has continued to be actively involved in different projects in the crypto and blockchain space. He enjoys learning, writing, and sharing knowledge about all things crypto.

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