CoinEx | The Differences Between Linear Futures Contracts and Inverse Futures Contracts

CoinEx
3 min readFeb 22, 2022

In perpetual contract markets, contracts are normally divided into linear futures contracts and inverse futures contracts. In the crypto market, linear futures contracts are also known as USDT-margined contracts or stablecoin contracts as they are priced using USDT. The greatest difference between such contracts and inverse futures contracts, also called coin-margined contracts, is that linear futures contracts are USDT-margined, while inverse futures contracts are margined by trading coins like BTC.

How should we make sense of all this? To be more specific, in markets of linear futures contracts, all contracts use USDT as the margin, and users only need to hold USDT to trade in different markets. On the other hand, inverse futures contracts are margined by trading coins like BTC and ETH, and users must hold the corresponding coin to trade in a market. For instance, in the BTCUSD market, you should deposit BTC as the margin. Simply put, when it comes to linear futures contracts, holding USDT will grant you access to all markets where linear futures contracts are traded, while you are required to hold the specified type of coin when trading inverse futures contracts. Plus, the profits you earned will also be settled in the specified type of coin.

The two types of contracts also have one thing in common: both are pegged to the spot price through the funding rate mechanism. Users can go for Short Sell or Long Buy on a contract based on their assessment of the market conditions, thereby profiting from the rise or fall of the crypto price. In CoinEx’s perpetual contract markets, you can trade contracts 24/7. Plus, there is no expiration/settlement date. On CoinEx, you can earn profits through Short Sell, Long Buy, Long Sell for liquidation, and Short Buy for liquidation. The table below shows the difference and similarities between linear futures contracts and inverse futures contracts.

On CoinEx, contract trading now covers multiple markets of linear futures contracts and inverse futures contracts, with up to 100x leverage. You can choose the type of contract, market, and leverage based on your asset conditions and investment preference and deposit the corresponding crypto as the margin to trade contracts.

That said, how do you determine which type of contracts to trade?

For beginner users who only hold stablecoins, linear futures contracts are a better choice. To begin with, users only need to hold USDT to trade such contracts; secondly, linear futures contracts offer a more straightforward illustration of one’s PNL conditions as USDT is more stable in value. As such, linear futures contracts are a good starting point for users who are new to contract trading.

However, if you hold other cryptos such as BTC and ETH and are experienced in contract trading, you could open a position for inverse futures contracts. When the market thrives, the value of cryptos earned via such contracts will also rise, and your profit will be multiplied. However, if you made a wrong decision, you will also suffer multiplied losses.

At last, it should be stressed that contract trading is subject to risks. We do not recommend piling into a contract that you do not know much about, especially when you are not familiar with the market conditions.

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