How to play Kraken delivery contracts

Kraken delivery contracts offer a cash-settled way to speculate on cryptocurrency prices, with leveraged exposure using futures contracts that expire at specific dates.

Nov 10, 2024 at 06:36 pm

How to Play Kraken Delivery Contracts: A Comprehensive Guide

Introduction

Kraken, a leading cryptocurrency exchange, offers delivery contracts that allow traders to speculate on the future price of cryptocurrencies without taking ownership of the underlying asset. These contracts provide leveraged exposure to the market, enabling traders to amplify their profits or losses. This guide will provide a comprehensive overview of how to play Kraken delivery contracts, encompassing key concepts, trading strategies, and risk management techniques.

Understanding Delivery Contracts

1. Definition and Key Features:

• Kraken delivery contracts are futures contracts that obligate the buyer to purchase or the seller to deliver a specific amount of cryptocurrency at a predetermined price and date.
• They are cash-settled contracts, meaning that traders settle their positions in cash rather than taking or delivering the underlying asset.
• Contracts have varying durations, such as quarterly or perpetual, and are traded with leverage, allowing traders to control a larger position with a smaller amount of capital.

2. Key Metrics:

• Contract Size: The amount of cryptocurrency underlying each contract, e.g., 1 BTC per BTCUSD contract.
• Trade Date: The date when the contract is traded.
• Expiry Date: The date when the contract expires and is settled.
• Mark Price: An estimate of the fair market value of the underlying asset, used for margin calculations.
• Index Price: A reference price calculated using a weighted average of prices from multiple exchanges.

Trading Delivery Contracts

3. Account Setup and Funding:

• Create a Kraken account and complete the verification process.
• Fund your account with the necessary amount of cryptocurrency or fiat currency.
• Select the "Futures" tab on Kraken's trading platform.

4. Selecting a Contract:

• Choose the cryptocurrency and contract duration that align with your trading strategy.
• Consider the contract's size, liquidity, and expiration date before entering a position.

5. Placing an Order:

• Select the "Order Entry" tab and choose the order type: Market, Limit, Stop-Loss, or Take-Profit.
• Enter the desired contract quantity and price.
• Review the order details and confirm the execution.

6. Managing Your Position:

• Monitor your open positions regularly, adjusting or closing them as needed.
• Adjust stop-loss or take-profit orders to manage risk and lock in profits.
• Margin Requirements: Maintain sufficient margin in your account to cover potential losses. The initial margin requirement varies depending on the contract and market conditions.

Trading Strategies

7. Technical Analysis:

• Use technical indicators, chart patterns, and trend analysis to identify potential trading opportunities.
• Study support and resistance levels, moving averages, and momentum indicators to gain insights into price action.

8. Scalping:

• Execute a series of small trades in rapid succession, aiming for quick profits from small price movements.
• Keep positions open for short periods, managing risk closely.

9. Trend Trading:

• Identify long-term market trends and trade in the direction of the trend.
• Hold positions longer than scalpers, aiming for substantial gains from large price swings.

Risk Management

10. Setting Stop-Loss Orders:

• Place stop-loss orders to limit potential losses in case of adverse price movements.
• Monitor the market and adjust stop-losses accordingly.

11. Position Sizing:

• Determine the appropriate position size based on your risk tolerance and account balance.
• Avoid overleveraging, as it can result in significant losses.

12. Margin Maintenance:

• Maintain sufficient margin to cover potential losses and avoid liquidation.
• Close losing positions or add additional margin if the market moves against you.