Making the most out of your derivatives

Have you tried our newly launched USDT-margined futures? 

What’s USDT Futures?

USDT futures contract is a linear derivative product quoted and settled in USDT. Each contract has a face value of a fixed amount of digital tokens, traders can long a position to profit from the increase of a crypto’s price, or short a position to profit from the decline. Currently, we offer BTC, ETH, BCH, EOS, XRP, BSV, and TRX USDT pairs with a leverage level of 0.01–100x, both in fixed and cross-margin mode.

From inverse to linear

Our existing token-margined futures is an inverse trading product that is settled based on the token trader selects. Inverse futures contracts are the most popular derivatives for trading crypto. It is settled in BTC (or the base currency trader selects) instead of USD, and are often used for hedging fiat value of crypto as they amplify trader’s profits when calculated in USD.

The P/L in linear futures, in contrast, correlates linearly with the movement of the crypto. A price movement in the underlying asset of the contract translates directly into a specific dollar value per contract.

For example, here’s a comparison between BTC/USD and BTC/USDT futures:

The two contracts differ in settlement currency. For inverse futures, P/L is calculated in BTC, while linear futures uses USDT. But how exactly does it affect trader’s profits in different markets? We’ll take buying Bitcoin as examples to further illustrate.

Let’s dive in.

1. Short Positions

Suppose 1 USDT = 1 BTC.

When the BTC price is USD 10,000: 

  • Token-margined Futures (inverse futures): Use 0.1 BTC and 10x leverage to short 1 BTC = 100 contracts (face value: USD 100)
  • USDT-margined Futures (linear futures): Use 1,000 USDT and 10x leverage to short 1 BTC = 10,000 contracts (face value: USD 0.0001 BTC)

If the BTC price falls by 10% from USD 10,000 to 9,000, P/L would be:

Traders can profit using both USDT-margined futures and Token-margined Futures to short BTC when the price falls. Yet when profit is calculated in fiat, token-margined futures generates a lower profit than USDT-margined futures. The profit of a token-margined futures correlates with the movement of BTC, thus trader’s profit decreases along with the BTC price.

2. Long Positions

Let’s say the value of 1 USDT = 1 USD.

When the BTC price is USD 10,000:

  • Token-margined Futures (inverse futures): Use 0.1 BTC and 10x leverage to long 1 BTC = 100 contracts (face value: USD 100)
  • USDT-margined Futures (linear futures): Use 1,000 USDT and 10x leverage to long 1 BTC = 10,000 contracts (face value: USD 0.0001 BTC)

If BTC rises 10% to USD 11,000:

In this case, traders can profit from long position from using either of the futures when the BTC price increases. When profit is settled in fiat, traders using token-margined futures can gain USD 100 more than using USDT-margined futures, as the former correlates to the BTC price and hence offers a higher profit similar to the percentage BTC rises.

The Verdict

Due to a difference in the settlement tokens, profits from USDT-margined futures is linear while token-margined profit is convex. How can traders leverage the tools to maximize profits?

In a bullish market, it makes more sense for traders to use open long positions with token-margined futures to maximize profits; when the market turns bearish, using USDT-margined futures to short is a safer option to maintain their gains. 

Similarly, opening long positions with token-margined futures in a short-term uptrend, or opening short positions with USDT-margined futures in a short-term downtrend can help traders enhance their profits.

In short, token-margined futures are more suitable for hedging purposes, such as miners, who tend to HODL certain tokens for a longer period of time, as it allows them to hedge the value of crypto holdings in terms of USD by opening short positions. USDT-margined futures can be seen as an “upgrade” for users who are already using fiat-margined futures to trade, as linear contracts are simpler to operate and do not need to hedge the margin risk like inverse contracts.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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