What happens if I hold a Kraken contract until expiration?

When a Kraken futures contract expires, it’s automatically settled using a time-weighted average price, with profits or losses credited to your futures wallet in USDT or USD.

Aug 09, 2025 at 03:01 am

Understanding Kraken Futures Contracts

Kraken offers futures contracts as part of its derivatives trading platform, allowing traders to speculate on the future price of cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). These contracts are agreements to buy or sell an asset at a predetermined price on a specified future date. When you enter a futures position on Kraken, you are either going long (betting the price will rise) or short (betting the price will fall). Unlike spot trading, futures involve leverage and expiration dates. The key point is that every futures contract has a set expiration time, after which the contract is settled.

If you hold a Kraken futures contract until expiration, the platform will automatically settle the position based on the final settlement price. This process is standardized and occurs regardless of whether the position is profitable or at a loss. The settlement price is typically derived from a time-weighted average price (TWAP) of the underlying asset across major exchanges during the final hour before expiration. This method prevents price manipulation and ensures fairness.

Automatic Settlement Mechanism

When a futures contract reaches its expiration on Kraken, the system initiates an automatic settlement process. This means you do not need to manually close your position. The platform calculates your profit or loss by comparing the entry price of your contract with the final settlement price. For a long position, if the settlement price is higher than your entry price, you earn a profit. If it’s lower, you incur a loss. The opposite applies to short positions.

The settlement is conducted in the settlement currency, which is usually USDT or USD, depending on the contract. Your realized PnL (Profit and Loss) is immediately credited or debited from your futures wallet balance. It’s important to note that if your account balance goes negative due to a loss, Kraken may trigger a liquidation or auto-deleveraging event, depending on the account type and available margin.

• The final settlement price is locked in based on the TWAP mechanism
• Your PnL is calculated instantly upon expiration
• Funds are adjusted in your futures wallet without manual intervention
• Margin requirements are no longer applicable post-settlement

Impact on Margin and Leverage

Holding a futures contract until expiration affects your margin utilization and leverage exposure. During the life of the contract, your position is subject to maintenance margin requirements. If the market moves against your position and your margin balance falls below the required threshold, Kraken may issue a margin call or liquidate the position before expiration.

However, if you hold until expiration, the margin is released once the contract settles. The initial margin used to open the position, along with any profits or losses, is returned to your available balance. For example, if you opened a 10x leveraged long contract using 0.1 BTC as margin, and the settlement results in a 0.02 BTC profit, your futures wallet will reflect 0.12 BTC after settlement.

• Leverage ceases to apply after expiration
• Used margin is freed up and returned to your balance
• Unrealized PnL becomes realized and is settled in full
• No further funding fees are charged post-expiration

Differences Between Perpetual and Quarterly Contracts

Kraken offers both perpetual futures and quarterly futures contracts. The behavior at expiration differs significantly between the two. Perpetual contracts do not have an expiration date and are instead funded periodically (every 8 hours) through a funding rate mechanism. Therefore, the concept of holding until expiration does not apply to perpetuals.

In contrast, quarterly futures have fixed expiration dates—typically the last Friday of each quarter. If you hold one of these contracts until the designated expiration time, it will be settled as described. Traders often roll their positions from the expiring contract to the next quarter’s contract to maintain exposure. This rollover must be done manually unless automated through specific trading bots or strategies.

• Quarterly contracts expire and settle automatically
• Perpetual contracts continue indefinitely with funding payments
• Rollover strategies require closing and reopening positions
• Expiration only affects time-based futures, not perpetuals

Tax and Accounting Implications

Holding a futures contract until expiration may have tax consequences depending on your jurisdiction. In many countries, including the United States, cryptocurrency futures are treated as Section 1256 contracts for tax purposes. This classification allows for 60/40 tax treatment, where 60% of gains or losses are considered long-term capital gains and 40% as short-term, regardless of how long the contract was held.

This can be beneficial for traders, as it provides a more favorable tax rate compared to ordinary income rates. However, you must report the realized PnL on your tax return. Kraken provides transaction history exports in CSV format, which include details like settlement time, PnL, fees, and contract size—all essential for accurate tax reporting.

• Settlement results in a taxable event
• 60/40 tax treatment applies in the U.S. for futures
• Accurate record-keeping is crucial for compliance
• Exportable trade data simplifies tax preparation

What Happens to Unfilled Conditional Orders?

If you have conditional orders such as stop-loss, take-profit, or limit orders attached to a futures contract, these are automatically canceled when the contract expires. Once the position is settled, any open orders linked to that specific contract become invalid. This means you cannot have post-expiration execution on expired contracts.

To maintain risk management on continued market exposure, you must place new orders on the next active contract. For example, if you held a long position in the BTC/USD quarterly contract expiring in March, and you want to stay hedged in April, you must open a new position and set fresh stop-loss or take-profit levels on the April contract.

• Conditional orders are canceled upon expiration
• New orders must be placed for subsequent contracts
• Risk parameters need to be re-established manually
• Automation tools can help replicate strategies on new contracts

Frequently Asked Questions

Can I close a Kraken futures contract before expiration?

Yes, you can close your position at any time before expiration by placing an opposite trade. For example, if you are long on a BTC quarterly contract, you can close it by going short the same contract size. This allows you to lock in profits or cut losses without waiting for automatic settlement.

Does Kraken charge fees when a contract expires?

Kraken does not charge additional fees specifically for expiration or settlement. However, standard taker and maker fees apply when you open or close positions. The final PnL calculation includes any applicable fees incurred during the trade lifecycle.

What happens if I have a losing position at expiration?

If your position is losing at expiration, the loss is deducted from your futures wallet balance. If your balance is insufficient to cover the loss, Kraken may initiate auto-deleveraging or draw from other account balances, depending on your account settings and risk tier.

Is the settlement price the same as the market price at expiration?

No, the settlement price is not the instantaneous market price. It is a time-weighted average price (TWAP) calculated over a specific period before expiration—usually the last hour. This prevents volatility spikes from distorting the final settlement value.