Announcing Kraken’s liquidity pool for futures

Enhanced risk management

We are always looking for ways to help our clients participate in crypto markets with greater confidence. So we are pleased to introduce our liquidity pool for futures, designed to minimize the need to unwind futures positions and improve the experience of Position Assignment System (PAS) participants. The liquidity pool provides additional downside protection against sudden market movements.

What is the liquidity pool?

It is a dedicated pool of funds set aside specifically to cover slippage-related losses resulting from liquidations, particularly during volatile or low-liquidity market conditions. It acts as an additional protective buffer, in addition to our PAS, when a position cannot be assigned. It covers any shortfall before an unwind occurs. By maintaining this fund, we aim to protect our traders and the integrity of our platform.

How do the liquidity pool and covered liquidations work?

When a futures trader’s position reaches its liquidation price, our platform first attempts to liquidate the position in the order book at a price that would prevent the liquidated counterparty’s equity from going negative. If the position cannot be liquidated via the orderbook, it is sent through the PAS to be filled by volunteer liquidity providers. Normally, if the liquidated position cannot be liquidated in the order book nor assigned in the PAS, then it would be unwound.

Instead of unwinding a position, the liquidity pool enables covered liquidations. The remaining position is filled in the order book and the pool covers any slippage-related losses incurred during the liquidation process.

How is the liquidity pool funded?

We charge a liquidation fee for liquidations occurring on Multi-Collateral futures.

Improvements to the Position Assignment System (PAS)

With the introduction of the liquidity pool, we have implemented improvements to the PAS.

The PAS is an optional program designed for experienced traders, notably liquidity providers. It allows participants to willingly accept high-risk positions resulting from unfilled liquidations. Offering a unique avenue to diversify risk management strategies and potentially realize higher returns, participants have the autonomy to set their assignment preferences. Given adequate margin, they can be assigned a position another trader was unable to sustain.

The sum total capacity of liquidity providers participating in the program offers a layer of protection against losses related to extreme volatility. It allows us not to require clawbacks and to have real-time settlement of profits.

Our recent enhancements ensure that all assignments through the PAS now have a profitability window of 0.5% minimum and 2.5% maximum. The trade price will always be at least 0.5% more favorable than the mark price at the time of assignment. This creates a safer environment for the PAS – ensuring that assigned positions remain profitable as long as liquidity pool funds are available.

Find out more about our PAS and how to participate here.

We constantly strive to provide our traders with the best possible trading experience, and that includes prioritizing their security and protection. Our liquidity pool is a testament to our ongoing commitment to maintaining a secure environment for our community.

Risk Disclaimer

Trading futures, derivatives and other instruments using leverage involves an element of risk and may not be suitable for everyone. Read Kraken’s risk disclosure to learn more. Trading futures, derivatives and other instruments using leverage might be subject to national restrictions and limitations.

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Author: KrakenFX

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