How to increase leverage in Kraken

Traders can amplify potential profits and short-sell assets by increasing leverage on Kraken, but they must carefully manage risks to mitigate potential losses and liquidation.

Nov 12, 2024 at 08:04 pm

How to Increase Leverage in Kraken

Kraken, one of the leading cryptocurrency exchanges, offers leveraged trading for a variety of digital assets. By utilizing leverage, traders can amplify their potential profits (and losses) by trading with more capital than they initially have. This guide will provide a comprehensive overview of the steps involved in increasing leverage on Kraken, including a detailed explanation of the risks and benefits associated with leveraged trading.

Understanding Leverage

Leverage refers to the practice of borrowing funds to increase the size of a trade. For example, a trader with $100 in their account could use 5x leverage to trade with $500 worth of assets. This would allow them to enter a larger position than they would be able to with their own capital.

Benefits of Leveraged Trading

• Increased potential profits: By amplifying the amount of capital available for trading, leverage can significantly increase potential profits.
• Short-selling opportunities: Leverage enables traders to short-sell assets, which means they can profit from price declines.
• Margin calls: Leverage can help traders avoid margin calls by providing a buffer against unfavorable price movements.

Risks of Leveraged Trading

• Increased potential losses: The downside of leverage is that it can also amplify potential losses. If the market moves against the trader's position, they could lose more money than they initially invested.
• Liquidation: If the trader's losses exceed their collateral, their position may be liquidated and they could lose their entire investment.
• Emotional trading: Leverage can lead to emotional trading decisions, as traders may be more likely to take excessive risks.

Steps to Increase Leverage in Kraken

1. Enable Leveraged Trading

Before you can increase leverage, you must first enable leveraged trading on your Kraken account. To do this:

• Navigate to the "Settings" tab in your Kraken dashboard.
• Click on the "Security" sub-tab.
• Scroll down to the "Leverage Trading" section.
• Enable leveraged trading and enter a 2FA code to confirm.

2. Set Leverage Level

Once leveraged trading is enabled, you can set your desired leverage level. To do this:

• Navigate to the "Trade" tab in your Kraken dashboard.
• Select the asset pair you want to trade.
• Click on the "Margin" tab.
• Enter your desired leverage level in the "Leverage" field.
• Click on the "Open Position" button to execute the trade.

3. Manage Risk

When trading with leverage, it is crucial to manage your risk carefully. Here are some best practices:

• Set stop-loss orders: Stop-loss orders automatically close your position if the market moves against you, limiting your potential losses.
• Use take-profit orders: Take-profit orders automatically close your position when it reaches a specified profit target, locking in your gains.
• Monitor your positions regularly: Regularly monitor your open positions and adjust your leverage or exit the trade if necessary.