Linear futures and inverse futures

In futures trading, each contract involves two currencies: the base currency (commodity) and the quote currency (pricing unit). For example, in BTC/USDT, BTC is the base currency, and USDTis the quote currency.

What is a linear futures contract?

Linear futures, also known as stablecoin-margined futures, are contracts where both pricing and settlement are done in the quote currency. This means traders only need to hold a single stablecoin to trade futures across multiple major cryptocurrencies, simplifying asset management. Transaction fees, margin requirements, and profits or losses are all denominated in that stablecoin. A common example is the USDT perpetual futures, where all operations are denominated in USDT.

What is a inverse futures contract?

Inverse futures, or coin-margined futures, quote prices in the quote currency but settle in the base currency. For example, in a BTC/USD-R perpetual futures contract, trades are priced in USD-R, but margin, fees, and settlement are all handled in BTC. To trade inverse futures for different cryptocurrencies, such as ETH, traders must hold the corresponding base asset (ETH in this case).

Key differences between linear and inverse futures

Linear futures tend to involve lower risk and smaller price fluctuations. In contrast, inverse futures carry higher risk due to exposure to volatile cryptocurrencies. A key advantage of linear futures is that traders can open positions across multiple cryptocurrency pairs using a single stablecoin, eliminating the need to hold various assets. This simplifies portfolio management and helps ensure that trading opportunities aren't missed due to delays in asset allocation.