How to calculate Kraken leverage fees

Understanding how to calculate Kraken leverage fees is essential for managing risk and maximizing trading efficiency, which involves determining leverage tier, calculating borrowing fee, determining trading volume, calculating interest on position, and summing these components to determine total fees.

Nov 20, 2024 at 01:49 am

How to Calculate Kraken Leverage Fees

Kraken, a leading cryptocurrency exchange, offers traders the ability to utilize leverage to magnify their potential profits (and losses). Understanding how to calculate leverage fees is crucial for managing risk and maximizing trading efficiency.

1. Determine Leverage Tier

Kraken categorizes traders into different leverage tiers based on their account balance, trading volume, and account history. Each tier carries a corresponding maximum leverage ratio:

• Tier 1: Up to 5x leverage
• Tier 2: Up to 10x leverage
• Tier 3: Up to 25x leverage
• Tier 4: Up to 50x leverage

Your leverage tier directly influences the fees you pay.

2. Calculate Borrowing Fee

When you trade with leverage, you effectively borrow funds from Kraken to increase your position size. This attracts a borrowing fee that consists of two components:

• Overnight Fee: A daily fee charged for holding a leveraged position overnight. It is typically a small percentage of the borrowed amount.
• Partially-Filled Order Fee: If your order is only partially filled, you incur a fee for the portion that remains unfilled. This fee is usually lower than the overnight fee.

3. Determine Trading Volume

Your trading volume over a 30-day period impacts the leverage fees you pay. Higher trading volumes result in reduced fees, while lower volumes lead to higher fees. Kraken uses a sliding scale system to calculate volume-based fees.

4. Calculate Interest on Position

In addition to borrowing fees, you may also need to pay interest on your leveraged position. This interest accrues daily and is calculated based on the interest rate set by Kraken. The interest rate varies depending on the market conditions and the cryptocurrency you are trading.

5. Calculate Total Fees

To calculate your total leverage fees, simply sum the borrowing fee, partially-filled order fee (if applicable), and interest on position.

Total Fees = Borrowing Fee + Partially-Filled Fee + Interest on Position

Example:

Assume you have a Tier 2 account and trade with 1 BTC (valued at $40,000) using 10x leverage.

• Overnight Fee: 0.01% of $40,000 * 1 BTC * 10x leverage = $40 per day
• Trading Volume: Assuming you have traded $500,000 in the last 30 days, you qualify for a reduced fee of 0.005%.
• Interest Rate: 5% per annum for BTC

Based on these assumptions, your total leverage fees would be as follows:

Total Fees = $40 per day + 0.005% * $40,000 * 1 BTC * 10x leverage + (5% / 365) * $40,000 * 1 BTC * 10x leverage
Total Fees ≈ $113.70 per day