Kraken adds AUD trading pairs, expands FX trading
AUD on Kraken helps expand the unique value proposition of its FX markets.
In January 2020 Kraken, a well-known global cryptocurrency exchange, acquired Bit Trade, Australia's oldest crypto exchange. Unsurprisingly this led to Kraken opening up AUD trading. It did so this week, making Kraken a much more viable option in Australia's thriving crypto exchange scene.
Less expectedly, Kraken decided to offer AUD-denominated FX trading, a service it first introduced in March 2020, in addition to letting its customers trade the AUD and other foreign currencies against the 30+ cryptocurrencies that it offers.
As such AUD trading on Kraken doesn't just mean you can now buy crypto with AUD there. It also means users around the world (except the US, presumably for regulatory reasons) can start doing fiat-to-fiat trading against AUD.
There are countless dozens of cryptocurrency exchanges in the world, but most of them are focused on cryptocurrencies and FX trading is still quite an oddity among them.
Kraken's FX offering is also unusual compared to most forex trading. Typically forex trading is done with leverage to keep things interesting given that price movements between currencies tend to be quite small. Kraken isn't offering any leverage on FX trades. It appears to be more about actually converting between currencies rather than taking a punt on the markets.
One reason could be to make it easier for Kraken market makers anywhere in the world to provide liquidity to AUD pairs.
"Kraken is a global exchange servicing nearly 200 countries. Many of our traders are active market makers and see great opportunity to provide liquidity and prices on the Australian dollar pairs," said Kraken Australia CEO Jonathon Miller. "While I don’t have a crystal ball to anticipate demand, I can say that we make decisions about our product offering based on client needs."
Another could be because in today's tumultuous markets people are more interested in diversifying their portfolio in more ways across more currencies. This year's market drops have demonstrated that cryptocurrencies are very much a risk asset, so fiat currencies could just be a strong addition to any cryptocurrency exchange's coin line-up. It's also worth noting that Kraken stablecoin trading fees will apply when FX trading meaning you'll pay no more than 0.2% in fees per trade or considerably less if you get volume-based discounts. Those fees are considerably more friendly than you'd typically get from banks or other currency exchanges.
FX trading on Kraken launched in mid-March, at about the same time as global markets had their first big pandemic panic attack, so it's tough to say how much of Kraken's FX trade volume was launch enthusiasm versus diversification in scary markets versus other demand, Miller said. But it seems to be a combination of all those factors.
"Volume on our fiat FX pairs spiked at launch, which we attribute to the user demand but also the tremendous mid-March volatility in traditional and crypto-currency markets, but we have continued to see increased volume since late March," he said.
Kraken's FX markets are still an oddity in the crypto exchange world, but given how useful they can be it's probably only a matter of time before more exchanges start getting into it.
Others are also looking in the same direction. The LMAX crypto exchange, for example, opened up FX trading earlier this month, specifically because of all the volatility in the markets and for weekends only because that's when the traditional forex markets are closed.
"The FX markets on our platform are an important part of managing risk for our clients and provide a frictionless way for clients to manage their trading across different assets," Miller said. "This is a trend that will likely continue as we bring our platform into new markets and service new fiat currencies."
Disclosure: The author holds BNB, BTC at the time of writing.