Simply put, Futures trading involves buying or selling a forward contract. According to this contract, the buyer will buy into assets at a predetermined price at a specified time (named delivery date) in the future, and the seller needs to deliver the asset at the predetermined price on the delivery date.
There are many types of Futures contracts today, such as inverse contracts, linear contracts, delivery contracts and perpetual contracts. So traders can flexibly formulate strategies via these contracts to obtain more profit.
*Inverse contracts vs. Linear contracts
*What is the difference between Inverse and Linear contracts?
*Perpetual contracts vs. Delivery contracts
*What is the difference between Perpetual and Delivery contracts?
1. Inverse contractsvs. Linear contracts
Inverse contracts are a coin-margined contract. If a trader would like to trade BTC, ETH, XRP, or DOT contracts, the underlying cryptocurrency has to be used as the margin to trade the respective contract. The underlying price rises and falls non-linearly with revenue.
For example, in a BTC-margined contract, one of the most popular inverse contracts, you must use Bitcoin as the underlying asset. If you want to trade Ethereum contracts, you must do the same with Ethereum.
A linear contract, which is a USDT-margined contract, uses USDT to make contract transactions with cryptocurrencies, and the underlying prices rise and fall linearly with revenue. In a linear contract, USDT is used for trading and settlements, which means that as long as you hold USDT, you can directly perform contract transactions with multiple mainstream currencies.
2. What is the difference between USDT-margin and BTC-margin contracts?
Compared with BTC-margined contracts, USDT-margined contracts are quite simple, risk averse, and not very volatile. So, for users with fiat currency standards, they prefer USDT-margined contracts because of their low transactional costs and simple settlement; hedging users headed by miners or a few cryptocurrency believers who want to continue to hold a certain currency for long periods of time prefer BTC-margined contracts.
|Type||USDT-Margined Contract||BTC-Margined Contract|
Of course, there are also many experienced contract traders who will choose the contract type based on their judgments on market trends. When they think the short-term market is rising, they choose a BTC-margined contract to long; when they think the short-term market is falling, they choose a USDT-margin contract to short. In this way, they can make more profit.
3. Perpetual contracts vs.Delivery contracts
Delivery contracts are one kind of cryptocurrency contract with a determined delivery date. The two parties to the contract will settle at a determined time, the delivery date, and deliver at the price agreed in the contract. KuCoin Futures has currently launched quarterly delivery contract including the BTC Quarterly 0625. This kind of contract will settle at 08:00 on June 25, 2021 (UTC).
Perpetual contracts are a type of contract without a settlement time. Users can continue to hold perpetual contract positions until they are closed or forced to liquidate due to insufficient margins. KuCoin Futures has currently launched more than 60 perpetual contract products, such as the USDT-margined BTC PERP, ETH PERP, BCH PERP, BSV PERP and the BTC-margined BTC Perpetual, ETH PERP, XRP PERP, DOT PERP. The USDT-Margined contracts cover from the DEFI to NFT field and still keep adding more down the way.
4.What is the difference between Perpetual and Delivery contracts?
There are two main differences between perpetual and delivery contracts:
First, the biggest difference between perpetual contracts and quarterly contracts is that the highest leverages are different. Currently, the BTC and ETH perpetual contracts that KuCoin Futures has launched provide up to 100x leverage, while delivery contracts support up to 20x leverage. When compared, perpetual contracts are more risky to some degree, yet more speculative.
Second, Perpetual Contracts have funding, with no expiry or settlement, which Delivery Contract doesn’t have funding with expiry date and settlement fee. For better understanding, below is a comparison chart for reference.
|Perpetual Contracts||Delivery Contracts|
|Contracts||BTC PERP/USDT||BTC Quarterly 0625|
|Expiry Date||Perpetual||2021/6/25 08:00:00 (UTC)|
|Max Order Quantity||1,000,000 lot(s)||10,000,000 lot(s)|
|Contract Size||1 lot(s) = 0.001 BTC||1 lot(s) = 1 USD|
|Funding Rate||Yes, differs in each contract||/|
|Settlement Fee||/||Yes, 0.025%|
For normal users, they can choose to invest in perpetual contracts or delivery contracts according to their own investment habits and preferences.
Institutional and professional investors often choose perpetual contracts and delivery contracts simultaneously, using a combination of the two products to form an even more complex investment strategy to minimize risk and improve efficiency of fund usage.