Difference between "Closing" and "Settling" positions

[Patinix]

Hi guys, I hope this is the right section for this.

I am trading at the Kraken exchange, but I am sure the same features are available at other exchanges.

Let's assume I have 3 ETH, and I want to short ETH/BTC, but I don't want to risk all my ETH, so I open a leveraged trade where I sell 2 ETH @ €100 @ Leverage: 2:1

So, now I have an open short position. Let's assume that ETH drops to €90. Now, I want to get rid of that position and take the profits in ETH and not EUR.

What is the difference between closing and settling positions? I tried reading, but I can't really understand what the difference is.


Now to the real life example. I have a short position, 2 ETH, Leverage 2:1 @0.0778 BTC right now.

Clicking "Settle" gives me this:


Clicking "Close gives me this:


Can someone explain these two windows, please? Why is the leverage at 5?

[1715550920]

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[1715550920]

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[Serpens66]

when settling/closing the leverage value has to be higher (or equal) than 2. If it is 2,3,4, or 5 does not matter cause closing/settling will "remove" all your positions to your set amount, regardless if it was leverage 2-5. That's why it prefills with leverage 5.

It seems you did not understand margin trading?
You write that you "dont't want to risk all your 3 ETH" and that's why you do margin trading, but thats just wrong. Even with margin trading you risk everything you are using for that position.
In your case with a 2 ETH short poisition with Leverage 2 , you are risking 1 ETH.
But you are paying quite high fee for opening and holding a position.
So it would be wise to just sell 2ETH without any position and make a stop loss. With help of stop loss you also won't loose more than 1ETH, so you have the same result, but are paying much less fees.

Margin trading is used if you want to trade more then you have. So if you would like to sell 6 ETH or more, but you only have 3.
If you want to sell/short 2ETH but have 3ETH, opening a position makes no sense

Now the use of closing/settling:
- Closing is reverting your position trade.
When you go short with 2ETH this mean you are borrowing ETH and sell them. When you now close this position it does mean you are buying ETH back (at the price you set) to pay the borrowed ETH back (and taking the profit/loss, so the difference)
- Settling is paying the borrowed funds back directly.
So instead of buying the previously sold ETH back, you give some other ETH from your wallet to the lender. So in your case, if you would settle the 2ETH short position, the endresult will be that you sold 2ETH at 100€ and have 1 ETH left now. The actual price does not matter when settling, since you are just giving your ETH to the lender.
When is settling useful? It is very useful if you have eg. 100 ETH in your coldwallet, but only EUR or any other currency at the exchange. Now you want to sell your 100ETH, but the network would take too long. So you can place a short position about 100ETH eg at 100€/ETH, using your EUR in account as colleteral. And when your ETH arrives after x minutes/hours, the price went already down to 70€/ETH, you can settle this position, to really get 100€/ETH.

[Patinix]

Wow, thanks for the very good reply.

I think I got the point now

[Patinix]

And if I want to create a long position, I need EUR to buy ETH at leverage?

Which means I have to sell my 3 ETH to get 3x€100=€300 which enables me to buy for €600 at 2:1 leverage.

[Serpens66]

It depends on the exchange what you need as colleteral.
Kraken has the advantage that you can use nearly every currency as colleteral.
So you can even use your 3 ETH to go long on ETH.

Go to your overview page on kraken and see what is written at "Free Margin", to see how much value you can use for your margin trades (it will be all of your currencies which can be used for margin converted to their "fiat" value, so when you are at BTC/EUR pair, it will be EUR and if you are on ETH/BTC pair, it will be BTC)

[akamit]

when settling/closing the leverage value has to be higher than 2. If it is 2,3,4, or 5 does not matter cause closing/settling will "remove" all your positions to your set amount, regardless if it was leverage 2-5. That's why it prefills with leverage 5.

It seems you did not understand margin trading?
You write that you "dont't want to risk all your 3 ETH" and that's why you do margin trading, but thats just wrong. Even with margin trading you risk everything you are using for that position.
In your case with a 2 ETH short poisition with Leverage 2 , you are risking 1 ETH.
But you are paying quite high fee for opening and holding a position.
So it would be wise to just sell 2ETH without any position and make a stop loss. With help of stop loss you also won't loose more than 1ETH, so you have the same result, but are paying much less fees.

Margin trading is used if you want to trade more then you have. So if you would like to sell 6 ETH or more, but you only have 3.
If you want to sell/short 2ETH but have 3ETH, opening a position makes no sense

Now the use of closing/settling:
- Closing is reverting your position trade.
When you go short with 2ETH this mean you are borrowing ETH and sell them. When you now close this position it does mean you are buying ETH back (at the price you set) to pay the borrowed ETH back (and taking the profit/loss, so the difference)
- Settling is paying the borrowed funds back directly.
So instead of buying the previously sold ETH back, you give some other ETH from your wallet to the lender. So in your case, if you would settle the 2ETH short position, the endresult will be that you sold 2ETH at 100€ and have 1 ETH left now. The actual price does not matter when settling, since you are just giving your ETH to the lender.
When is settling useful? It is very useful if you have eg. 100 ETH in your coldwallet, but only EUR or any other currency at the exchange. Now you want to sell your 100ETH, but the network would take too long. So you can place a short position about 100ETH eg at 100€/BTC, using your EUR in account as colleteral. And when your ETH arrives after x minutes/hours, the price went already down to 70€/BTC, you can settle this position, to really get 100€/ETH.

@Serpens66

Thank you for your very informative post.
I really learned something tonight..

I have bookmarked the thread so that I can read again and can do something good.

[Jollyjoe]

Is settling is buying the full position with your own equity so that it's no longer a margin trade, but does not close the position?
           thnx for any replies in advance.

[Saint-loup]

- Settling is paying the borrowed funds back directly.
So instead of buying the previously sold ETH back, you give some other ETH from your wallet to the lender. So in your case, if you would settle the 2ETH short position, the endresult will be that you sold 2ETH at 100€ and have 1 ETH left now. The actual price does not matter when settling, since you are just giving your ETH to the lender.
When is settling useful? It is very useful if you have eg. 100 ETH in your coldwallet, but only EUR or any other currency at the exchange. Now you want to sell your 100ETH, but the network would take too long. So you can place a short position about 100ETH eg at 100€/ETH, using your EUR in account as colleteral. And when your ETH arrives after x minutes/hours, the price went already down to 70€/ETH, you can settle this position, to really get 100€/ETH.

Ok but if you don't possess the good currency what is happening?

How a "settling" works for a long position?

Thank you

[Saint-loup]

Nobody can explain me please?

[Serpens66]

Ok but if you don't possess the good currency what is happening?

How a "settling" works for a long position?

Thank you

not sure what you are asking?
In the example you quoted, so shorting ETH, you can not settle the position if you have no ETH in your balance

And a long position works the same. If you go long, on ETH/USD it means that you borrow USD. To settle this long, you give USD to the lender.