How are profits and losses calculated on Kraken contracts?

Understanding Kraken Futures and Contract Types

Kraken offers a robust futures trading platform known as Kraken Futures, which allows traders to speculate on the price movements of various cryptocurrencies using perpetual contracts and quarterly futures contracts. These contracts are settled in cryptocurrency and are traded with leverage, enabling traders to control larger positions with a smaller amount of capital. The primary markets include BTC/USD, ETH/USD, and other major pairs. Each contract has a specific contract size, typically representing a fixed amount of the base cryptocurrency—such as 1 USD worth of BTC per contract in inverse or linear contracts. It’s essential to know whether you're trading linear (quoted and settled in fiat or stablecoin) or inverse (quoted in USD but settled in crypto) contracts, as this affects profit and loss (P&L) calculations.

Mark Price vs. Entry Price: The Foundation of P&L

The calculation of profits and losses on Kraken begins with the difference between your entry price and the mark price (for unrealized P&L) or exit price (for realized P&L). The mark price is a crucial concept designed to prevent price manipulation and ensure fair liquidation. It is derived from the average price of the underlying asset across major spot exchanges, combined with the funding rate mechanism in perpetual contracts. When you hold an open position, your unrealized P&L is calculated using the formula:

• For long positions:Unrealized P&L = (Current Mark Price – Entry Price) × Position Size

• For short positions:Unrealized P&L = (Entry Price – Current Mark Price) × Position Size

This value is updated in real time on the Kraken interface, allowing traders to monitor their equity. The position size refers to the number of contracts held, adjusted by the contract’s multiplier (e.g., 1 contract = $1 of exposure).

Realized Profit and Loss Upon Closing

When you decide to close a position, the realized P&L is computed based on the actual execution price of the closing trade. The formula mirrors the unrealized version but uses the exit price instead of the mark price. For example:

• Closing a long position:Realized P&L = (Exit Price – Entry Price) × Position Size

• Closing a short position:Realized P&L = (Entry Price – Exit Price) × Position Size

Fees also impact the final P&L. Kraken charges taker and maker fees on futures trades, which are deducted from your margin balance. These fees vary based on your 30-day trading volume and can range from 0.02% to 0.05% for takers. The net profit or loss is therefore:

Net P&L = Realized P&L – Trading Fees

It’s important to account for these fees when evaluating trade performance, especially in high-frequency or scalping strategies.

Funding Rates in Perpetual Contracts

Perpetual contracts on Kraken include a funding rate mechanism that ensures the contract price stays close to the spot market price. Every 8 hours, traders either pay or receive funding depending on whether they hold a long or short position and the prevailing funding rate. If the funding rate is positive, longs pay shorts; if negative, shorts pay longs.

The funding payment is calculated as:

Funding Payment = Position Size × Funding Rate

This amount is automatically deducted or added to your wallet when funding occurs. Over time, these payments can significantly affect net profitability, particularly for positions held across multiple funding intervals. Traders monitoring long-term P&L must include cumulative funding payments in their calculations.

Margin and Liquidation Impact on P&L

Kraken uses a cross-margin system by default, where your entire futures wallet balance acts as collateral for open positions. Your available balance, used margin, and equity are updated in real time. If the market moves against your position and your margin ratio falls below the maintenance threshold, a liquidation occurs. During liquidation, the position is forcibly closed at the prevailing market price, and the realized P&L is locked in, often at a significant loss.

The liquidation price is determined by your entry price, leverage, fees, and funding. For a long position, it can be approximated as:

Long Liquidation Price = Entry Price × (1 – Initial Margin % + Maintenance Margin %)

For a short:

Short Liquidation Price = Entry Price × (1 + Initial Margin % – Maintenance Margin %)

Once liquidated, the remaining margin (if any) is returned to your wallet, but the P&L reflects the full loss up to that point. This mechanism underscores the importance of risk management.

Step-by-Step Example: Calculating P&L on a BTC/USD Trade

Consider the following scenario on Kraken Futures:

• You open a long position in BTC/USD perpetual contract.

• Entry Price: $60,000

• Position Size: 10,000 contracts (each contract = $1 exposure)

• Leverage: 5x

• Taker Fee: 0.05%

• You later close the position at $62,000

• Unrealized P&L while open:($62,000 – $60,000) × 10,000 = $20,000

• Realized P&L:($62,000 – $60,000) × 10,000 = $20,000

• Opening Fee:$600,000 (notional value) × 0.0005 = $300

• Closing Fee:$620,000 × 0.0005 = $310

• Total Fees: $610

• Net P&L:$20,000 – $610 = $19,390

Additionally, if you held the position for 24 hours, you may have paid or received three funding payments. Assuming an average funding rate of 0.01% per interval and being long:

• Funding Cost: 10,000 × 0.0001 = $1 per interval × 3 = $3

• Adjusted Net P&L: $19,390 – $3 = $19,387

Frequently Asked Questions

What is the difference between realized and unrealized P&L on Kraken?Unrealized P&L reflects the current profit or loss of an open position, calculated using the mark price. Realized P&L is the actual gain or loss after closing a position, based on the execution price, minus fees.

How does leverage affect profit and loss calculations?Leverage amplifies both gains and losses. While it doesn’t change the P&L formula directly, it reduces the margin required, increasing the percentage return (or loss) on your capital. A 5% price move with 10x leverage results in a 50% gain or loss on margin.

Where can I view my P&L history on Kraken?Navigate to the Futures tab, select Account or P&L section. You can view daily, weekly, and cumulative P&L, including breakdowns by symbol, fees, and funding payments.

Are P&L values on Kraken displayed before or after fees?Unrealized P&L shown in the interface is typically before fees. Realized P&L in the transaction history includes net values after fees and funding have been applied.