Home > Types of Crypto Futures Contracts: Understanding Perpetual, Inverse, Linear Options > Types of Crypto Futures Contracts: Understanding Perpetual, Inverse, Linear Options
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Written by Sudhir Khatwani
Sudhir Khatwani holds a bachelor's degree from Vellore Institute of Technology and has made significant contributions as a Programmer Analyst at Cognizant, where he worked on critical projects for leading financial institutions like MUFG and CITI Bank. His technical expertise and analytical skills have been instrumental in delivering high-impact solutions within the financial sector. His expertise in digital assets and blockchain technology was further honed through his previous role as a content strategist for the prominent cryptocurrency exchange, CoinSwitch.
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Last Updated on February 6, 2025
The cryptocurrency derivatives market offers a range of contract types, two of the most popular being Inverse Perpetual and USDT Perpetual contracts.
Both are essential tools for traders looking to profit from market movements without holding physical assets.
Understanding the nuances between these two contract types is vital for traders aiming to maximize profits while managing risks.
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Before diving into the specifics of Inverse and USDT perpetual contracts, it’s important to grasp what a perpetual contract is.
Unlike traditional futures contracts, perpetual contracts have no expiry date, meaning traders can hold their positions indefinitely.
These contracts are usually settled in cryptocurrency or stablecoins, and they rely on a funding mechanism to keep their prices in line with the spot market.
Inverse perpetual contracts are contracts in which the margin, profit, and loss are all denominated in the base cryptocurrency. For example, if you are trading BTC/USD, your margin, profits, and losses will all be settled in Bitcoin (BTC).
For instance, a trader must hold Bitcoin when trading an inverse BTC/USD perpetual contract. If Bitcoin’s price falls, both the value of the collateral and the trading position decrease.
USDT perpetual contracts are contracts where the margin, profits, and losses are all denominated in Tether (USDT), a stablecoin pegged to the US dollar.
These contracts are popular among traders who want to minimize their exposure to crypto volatility by using a stable asset for margin and settlement.
For example, in a BTC/USDT perpetual contract, a trader can speculate on Bitcoin’s price movement while using USDT for margin and settlement.
Feature | Inverse Perpetual Contracts | USDT Perpetual Contracts |
---|---|---|
Collateral Type | Cryptocurrency (e.g., BTC, ETH) | Stablecoin (USDT) |
Profit & Loss Denomination | Cryptocurrency (e.g., BTC, ETH) | USDT |
Price Volatility Exposure | High, as the collateral is in crypto | Low, since USDT is stable |
Margin Management | It is more complex due to crypto price fluctuations | It is simpler due to stable USDT value |
Ideal For | Long-term crypto holders or speculators | Traders seeking stable collateral and ease of management |
Risk of Liquidation | Increased during market downturns due to fluctuating collateral value | Lower due to stable USDT collateral |
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Choosing between inverse perpetual and USDT perpetual contracts depends on your risk tolerance, trading goals, and preference for managing crypto exposure.
A USDC perpetual contract functions similarly to a USDT perpetual contract but uses USD Coin (USDC) as the collateral and settlement currency.
USDC is another stablecoin pegged to the US dollar, offering traders a stable alternative to volatile crypto assets for managing margin and risk while speculating on crypto price movements.
A USDT perpetual contract is a crypto derivative contract where margin, profits, and losses are calculated in Tether (USDT), a stablecoin pegged to the US dollar.
These contracts offer traders a stable and predictable environment for trading without worrying about the volatility of the underlying cryptocurrency affecting their collateral value.
Both inverse perpetual and USDT perpetual contracts offer unique advantages to different types of traders.
Inverse perpetual contracts connect the underlying asset more deeply, making them attractive to long-term crypto enthusiasts. In contrast, USDT perpetual contracts appeal to those who prefer stability and simplicity in margin management.
By understanding the critical differences between these contract types, traders can make informed decisions that align with their trading strategies and risk preferences.
Sudhir Khatwani holds a bachelor's degree from Vellore Institute of Technology and has made significant contributions as a Programmer Analyst at Cognizant, where he worked on critical projects for leading financial institutions like MUFG and CITI Bank. His technical expertise and analytical skills have been instrumental in delivering high-impact solutions within the financial sector. His expertise in digital assets and blockchain technology was further honed through his previous role as a content strategist for the prominent cryptocurrency exchange, CoinSwitch.
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