Does Kraken contract have overnight fees?

Kraken Contract imposes overnight fees on its perpetual futures and forward contracts, calculated based on position size, funding rate, and daily rollover period.

Nov 14, 2024 at 11:52 pm

Does Kraken Contract Have Overnight Fees?

Introduction

Overnight fees, also known as roll-over fees, are charges incurred when traders hold positions on futures contracts beyond the daily settlement time. These fees intend to incentivize traders to close their positions daily and prevent excessive speculative holding.

In the context of cryptocurrency trading, overnight fees are typically charged by exchanges offering futures contracts. Kraken, one of the leading cryptocurrency exchanges, has implemented overnight fees on its futures contract platform.

Does Kraken Contract Have Overnight Fees?

Yes, Kraken Contract charges overnight fees on all perpetual futures and forward contracts. These fees are calculated based on the size of the position held overnight and the underlying asset's funding rate.

How Overnight Fees Are Calculated on Kraken Contract

The overnight fee formula on Kraken Contract is:

Overnight Fee = Position Size x Funding Rate x Daily Rollover Period

• Position Size: The notional value of the contract held overnight.
• Funding Rate: The daily funding rate for the underlying asset. This rate varies based on market supply and demand and aims to ensure that the price of the futures contract converges with the spot market price.
• Daily Rollover Period: The daily period over which the overnight fee is charged, which is normally 24 hours.

Impact of Overnight Fees on Kraken Contract Traders

Overnight fees on Kraken Contract can impact traders in several ways:

1. Hedging Costs: For traders using futures contracts for hedging, overnight fees add to their hedging costs, reducing the potential returns.
2. Trading Strategies: Traders may need to adjust their trading strategies to minimize overnight fee expenses, such as closing positions before the daily settlement time.
3. Position Management: Overnight fees incentivize traders to manage their positions actively, closing them out when the funding rate is unfavorable or the market trend is unclear.

Steps to Reduce Overnight Fees on Kraken Contract

There are several steps traders can take to reduce overnight fees on Kraken Contract:

1. Monitor Funding Rates: By keeping track of the funding rates for different assets, traders can identify opportunities to reduce fees by trading contracts with positive or low negative funding rates.
2. Close Positions Before Settlement: The best way to avoid overnight fees is to close all positions before the daily settlement time, which varies depending on the contract's specifications.
3. Limit Position Size: Holding smaller positions reduces the overall overnight fee burden, as fees are calculated based on the position size.
4. Consider Position Hedging: Traders who must hold positions overnight can consider hedging strategies to offset potential losses incurred from unfavorable funding rates.

Conclusion

Overnight fees are a common aspect of futures trading on cryptocurrency exchanges. Kraken Contract charges overnight fees on all perpetual futures and forward contracts based on the position size, funding rate, and daily rollover period. Traders should be aware of these fees and take steps to minimize their impact on their trading strategies and overall trading costs.