Help me understand leverage, liquidation and collateral in Kraken!
Hi, I’d like to start doing leverage trading on kraken but I have a few doubts I haven’t been able to clarify reading the support articles and looking at tutorials on Youtube. For comparison purposes, when you open a leverage position on Bitmex, the cost of the position is stated very clearly, and so is the liquidation price. If the liquidation price is hit, then your position is closed and you only lose the cost of the position, without putting at risk the rest of your account balance. On kraken, I find the interface gives less information than Bitmex, so here are my doubts:
For the sake of this example, let’s say I have an account with 1BTC and $1000.
When I open a leverage position through the interface at trade.kraken.com, I understand that the “Amount” is the total value of the position. Let’s say I use 0.5BTC for the position, and then I select a leverage of 5. This would mean I personally put 0.1BTC (leaving 0.9BTC available for withdrawal or another position) and Kraken lends me the other 0.4BTC. Is that correct?
I know I always have to use stop loss to protect the capital, but I want to understand how the liquidation process works in kraken. So since Kraken doesn’t show the liquidation price of the opened positions, I’ll have to calculate them myself. In theory, based on my experience with Bitmex, with a leverage of 5, the liquidation price of my position would be hit if the value of the BTC decreases by 20%, right? Since 5x 20% = 100%, then closing the position at a 20% loss would mean Kraken is able to cover the loses with my original 0.1BTC I put in the position (minus fees).But when I look at the support guide, for BTC, Kraken talks about a Margin Call Level of 80% and a Margin Liquidation Level of 40%. I don’t understand what that means and how do I use this in my liquidation price calculations. What are those percentages referring to?
If this position gets liquidated, do I only lose my 0.1BTC, or does Kraken cover the losses with my collateral currencies beyond the original 0.1BTC I put in the position? They talk about using more collateral if the position goes into a negative p/l, so it confuses me. I guess it depends on where they put the liquidation price, right? So maybe this question is related to the previous one.
I can open positions using collateral currency. How does Kraken decide, in case of a liquidation, what currency is he going to use to cover the losses? My BTC or my $1000 from my account?
Since Kraken is my native exchange and I trust them, I’d like to do leverage trading there (and not in Bitmex at the moment), but not before fully understanding the mechanics behind it, and particularly the liquidation part. Thanks for your help!
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