Kraken Obtains MiFID Licence to Launch Crypto Derivatives Trading in the EU

Kraken has acquired a licence that allows the crypto exchange to offer services like derivatives trading to advanced traders in the EU. This week, Kraken announced that it has secured a Markets in Financial Instruments Directive (MiFID) licence in the EU. With this, the exchange plans to expand its service portfolio across all EU member nations. Kraken says it will begin work on launching these advanced trading products in the EU market in the coming months.

Kraken Acquires MiFID Licence via Cypriot Acquisition

The crypto exchange secured the MiFID licence after it completed the acquisition of an investment firm named Cypriot. Post this purchase, the Cyprus Securities and Exchange Commission (CySEC) approved Kraken as an MiFID-licenced crypto entity in the EU.

“As one of the most active regions for crypto derivatives trading, Europe represents one of our key growth markets. The ability to offer regulated and fully compliant derivatives products allows advanced traders to gain exposure to a wide selection of assets in a capital-efficient and flexible manner, using a variety of collateral currencies to back their positions,” the San Francisco, US-headquartered exchanged said on its website.

Securing this MiFID licence in the EU comes as a positive development for Kraken after multiple setbacks in recent months.

In December 2023, the exchange was blocked in India for not having registered with the Financial Intelligence Unit.

Last year, the exchange was slapped with a fine of $5.1 million fine (roughly Rs. 43 crores) in Australia. At the time, the Australian Securities and Investment Commission (ASIC) said that the exchange was offering credit services without completing the legal formalities and obtaining required licences to Australian nationals, exposing them to financial risks.

The exchange also shut down its NFT platform in November last year after two years of launching it. As the NFT market registered a significant slump last year, Kraken decided to use its resources into other, more profitable products and services.

Kraken was founded in 2011, and it claims to have over 13 million customers worldwide. The centralised exchange is owned by Payward Inc., founded by its CEO, Jesse Powell.

Glimpse Into Derivatives Trading

Derivatives trading involves speculating on the future price movements of a particular underlying asset, without the need to purchase it, and it is considered a high-risk activity. Crypto derivatives, as explained by Trust Waller, are financial contracts that are linked to an underlaying asset. The values of these financial contracts are pegged to the value of the underlaying assets. With crypto derivatives, traders are required to estimate and guess the price movements of crypto assets without necessarily having to hold the assets.

As per a CoinSwitch blog post, there are three types of crypto derivatives — futures, options, and swaps.

In futures contracts, the buyer and seller are required to purchase and sell a crypto asset at a set price on a particular date. These contracts work on price predictions. In options trading, one can choose to buy or sell an underlaying asset at a fixed price before or on a pre-decided date. Meanwhile, swaps require two parties to exchange assets based on how the underlaying asset actually performs in the market.

Derivatives trading can let traders experiment with digital assets without having to purchase them. Derivatives bring liquidity and diversification in trading strategies, keeping markets competitive.

However, as CoinSwitch points out, derivatives trading can expose investors to the risks posed by fluctuating market prices. In addition, trading fees can dent profits from derivatives trading.

Traders engaging in derivatives trading are eventually responsible for the outcome of their trading decisions, hence, more market experience can give them a better chance of maximising their earnings.