How To Short on Kraken: Step-By-Step Guide For Beginners
Kraken is one of the largest cryptocurrency exchanges that cater to retail and institutional investors. Aside from allowing investors to buy crypto assets low and sell high, Kraken also supports 'shorting.' This how-to shorting tutorial explains how to short on Kraken.
Can You Short on Kraken?
It is possible for investors in over 50 countries to short-sell cryptocurrencies on Kraken. There is access to over 100-margined positions with a maximum of 5x leverage. Shorting on Kraken is offered on its margin and futures trading platforms (read our full Kraken review):
- Kraken margin trading platform. Margin trading is done on the spot position trading market and entails the investor using borrowed funds to open a shorting position. With this option, investors can utilize leverage up to 5X, depending on the selected asset, as Kraken offers various leverage for various assets. With this leverage, investors can significantly increase their trade exposure and potential profit on the short-sell.
- Kraken Futures trading platform. With the Kraken futures trading, investors can trade based on the future price movements of an asset with leverage up to 5X. Futures are agreements between two parties to buy an asset at a particular price at a later period. It allows an investor to have exposure to an asset without holding the underlying asset.
How to Short on Kraken with Margin
1. Login or open an account on Kraken
The first step is to log in to an existing account or click on the 'Create Account' icon to open a new account. Enter a valid email address and a unique password, and select the current country of residence. Agree to the terms and conditions.
Kraken enforces KYC to deposit fiat and trade with margin. Once signed in, click on the 'Get Verified' icon that pops up over the trading account and fill in the required details. Upload a copy of a recent driver's license or a government-issued ID card. Sometimes, a user may be required to submit a recent utility bill that captures their current residence. The Kraken team will verify the account within hours.
2. Deposit funds
The next step is to fund the new Kraken account. Kraken supports multiple fiat currencies, including USD, GBP, EUR, and RUB, amongst others. Users can easily deposit funds using bank wire transfers, automated clearing house (ACH for US investors), crypto deposits, credit/debit cards, and e-wallet solutions. The minimum investment is $10 to short crypto on Kraken.
3. Switch from 'Simple' to Advanced
Once the transfer has been completed, tap on 'Trade' in the top left corner of the Kraken homepage. Under 'New Order' simple and advanced trading options appear on the screen. By default, the interface is automatically set to 'Simple'. However, switch from 'Simple' to 'Advanced' to unlock the margin trading account.
4. Set the margin amount
Set the amount of leverage to use. Kraken offers up to 5x on customer's collateral. The leverage bar is set to 'None' for new orders. Choose from the list in the right-hand corner of the order book to proceed.
5. Borrow funds
The next step is to take out a loan from the exchange or borrow (this is optional). To do this, select the crypto asset to loan, input the amount, and click on 'Borrow' to complete the step. The funds will be directly deposited into the margin trading account.
6. Enter a short position
The next step is to set the price to sell the asset. Kraken offers different tools to streamline the trading process. The most common is the 'limit' and 'market' tools. 'Limit' allows the user to set a price directly they intend to buy, say Bitcoin. On the other hand, 'Market' allows the user to buy at the current trading price of the asset. Select one of the two, and set the amount of the asset to buy.
7. Return the borrowed funds
Once the trade is made and a profit is realized, the final step is to close to set up a position settlement and pay back the loan. To do this, head back to 'Trade' and click 'Sell', then insert how much of the asset to liquidate. Then select between limit or market price and toggle the 'Order Type' to 'Settle Position'. Once the trade is confirmed, the exchange gets the borrowed funds, and the investor pockets the difference.
How to Short on Kraken with Futures
1. Login to Kraken
To register for a new account, visit Futures.kraken.com and click on 'Create Account' and fill in the email address box and insert a unique, strong password. Select the region of residence and click on the T&C box to activate the 'Create Account' icon. To access Kraken's Futures platform, there is an ID verification phase that must be completed. The verification speed on Kraken can take a few minutes to complete.
2. Fund the account
Once the account is verified, users can then proceed to deposit. Select a preferred payment method and deposit a minimum of $10. The deposit will be directly credited to the Spot wallet. Kraken supports over 50 fiat currencies, including GBP, USD, and EUR.
3. Switch to Futures
Once a deposit is made, tap on the four-box icon above the wallet balance and select 'Kraken Futures' from the drop-down menu. This will redirect the user to the Futures trading interface.
4. Enter a short trade
Locate the 'Trading' segment on the far right-hand corner and switch from 'Buy' to Sell'. Then set the 'Leverage' and choose 'Limit' from the 'Order Type.' Enter the price to short-sell the underlying asset and click on 'Review Sell' to go through the trade again. Once the order has been entered, click on the 'Confirm Sell' and the trade will automatically be executed.
Who Can Short on Kraken?
Kraken is a global crypto exchange but the offered services are based on the user's region. Most European residents can access kraken's full range of services including being able to short crypto. However, US residents need access to the Futures trading service, and margin trading comes with very specific requirements, like holding a certification as an Eligible Contract Participant (ECP).
What Are The Fees To Short on Kraken?
Kraken shorting fees using margin are based on the underlying asset that the investor wants to short. For example, the short fee for BTC (Bitcoin) is 0.01% with a 0.01% per 4 hours rollover fee. For traders that initiate shorts on the Kraken Future's platform, the starting fee is 0.02% and 0.05% for makers and takers respectively and decreases with higher trading volumes over a 30-day period.
Frequently Asked Questions
US residents can access margin trading, but the user needs to self-certify as an ECP individual after completing the KYC process.
You can short-sell by tapping the 'Trade' icon and creating a 'New Order.' From there, click on 'Sell,' select the crypto, and follow the on-screen prompts to short the asset.
Short-selling crypto on Kraken can be a viable way of locking in profit during a bearish season. However, the process is risky and better suited for advanced traders. Shorting crypto on Kraken is straightforward, and with the 5x leverage, users can easily increase their potential returns.