How will Kraken protect themselves from default when offering margin?
See "Understanding Leverage and Margin" in our Trading Guide - https://www.kraken.com/help/trading-guide#understanding-leverage-and-margin
The basic idea is that we will liquidate positions well before a user reaches the point that they owe us any money. (Edit: That is, well before the user's losses got to the point that the value of their positions (and account balance) was less than the amount they owed us and their positions couldn't be liquidated to fully pay their debt to us.) This is the purpose of the "Margin Call Level" and the "Margin Liquidation Level". Before anyone starts trading on margin, they should carefully read this section of the Trading Guide and make sure they understand the risks of margin trading.
We can't use customer funds for our own operations, so if we couldn't continue to fund our operations, we would wind down trading and return funds to customers.
From https://www.kraken.com/security/practices (under "Financial Security"):
- Customer funds reside in a bank account separate from our operations account, and fees are transferred on a daily basis.
- Customer funds cannot be borrowed to fund operations, nor can they be lent, even for margin trading on our own platform.
Thanks for the questions RationalSpeculator.