With the rapid development of the digital currency market, cryptocurrency derivatives trading is increasingly attracting investor attention. Among many trading tools, contract trading has become a favored method for many investors due to its leverage trading characteristics and high-risk, high-reward nature. However, for beginners, the concepts of Coin-based and U-based contracts can often be confusing. This article will detail the characteristics, differences, and applications of these two types of contracts in cryptocurrency investment.
What is a Coin-based contract?
Coin-based contracts are derivatives that use cryptocurrency as margin and settlement currency. In this model, investors use Bitcoin or other cryptocurrencies as collateral for trading. For example, in Bitcoin perpetual contracts, traders can use Bitcoin as margin and settle profits and losses in Bitcoin. A notable feature of this contract model is that investors do not need to convert assets into fiat currency and can trade directly within the cryptocurrency ecosystem.
The advantage of Coin-based contracts lies in reducing the friction costs of converting fiat currency while maintaining the closed nature of the cryptocurrency ecosystem. For long-term holders of cryptocurrencies, this trading method allows for leveraged trading and risk hedging without selling existing crypto assets. However, it also has certain limitations, such as when the price of the underlying asset fluctuates significantly, the margin may rapidly shrink, increasing liquidation risk.
What is a U-based contract?
In contrast, U-based contracts are derivative contracts that use stablecoins such as USDT (Tether) as margin and settlement currency. USDT, being a stablecoin pegged to the US dollar, has a relatively stable value, providing investors with a more intuitive way to price margins. In U-based contracts, regardless of whether the trade is Bitcoin, Ethereum, or other cryptocurrencies, margins and profits and losses are priced and settled in USDT.
The main advantage of U-based contracts is that they reduce the impact of price fluctuations on margin. Due to the relative stability of USDT, investors can focus more on the price movements of the underlying asset without overly worrying about fluctuations in the margin itself. This model is particularly suitable for investors looking for a more predictable trading environment. At the same time, U-based contracts also facilitate the calculation of profits and losses, as these are all priced in stablecoins pegged to the US dollar.
From a risk management perspective, both types of contracts have their merits. Coin-based contracts are suitable for investors who firmly believe in the long-term value of cryptocurrencies and wish to maintain exposure to crypto assets; while U-based contracts are more suitable for investors seeking a relatively stable trading environment and wishing to reduce the impact of cryptocurrency price fluctuations. The choice of which contract to use should be based on individual investment strategies, risk tolerance, and market judgment.
It is important to emphasize that regardless of whether you choose Coin-based or U-based contracts, cryptocurrency derivatives trading carries extremely high risks. Leveraged trading can lead to losses exceeding the principal amount, and investors must fully understand the trading mechanisms, strictly control their positions, and develop rigorous risk management strategies. For most investors, it is essential to participate in cryptocurrency derivatives trading rationally and cautiously.
What are the differences between U-based contracts and Coin-based contracts?
Binance's [Contract Trading] has two types of products: ① U-based contracts (USD-M Futures) and ② Coin-based contracts (Coin-M Futures). The easiest way to distinguish between the two is that Coin-based contracts have a CM suffix (for example: BTCUSDCM).
The types of contracts are divided into [Futures Contracts] and [Perpetual Contracts], the difference being that perpetual contracts do not have a delivery date.
1. Characteristics and advantages of U-based contracts:
Definition: A U-based contract refers to a contract valued in US dollars, such as the Bitcoin/US dollar (BTC/USD) contract. Leverage can be utilized for both long and short trades.
Settlement in assets pegged to the US dollar: Contracts are priced and settled in USDT or USDC.
Expiration dates: perpetual contracts, quarterly contracts, and next quarterly contracts.
Clear pricing rules: Each contract specifies the delivery quantity of the underlying asset for a single contract, also known as the 'contract unit.' For example, similar to the spot market, BTC/USDT, ETH/USDT, and BCH/USDT contracts only represent one unit of their respective underlying assets.
Unique advantages: In times of significant market volatility, U-based contracts can effectively reduce the risk of large price fluctuations. For example, in a bearish market, the profits from short positions are all calculated in the stablecoin USDT and will not incur losses.
2. Characteristics and advantages of Coin-based contracts:
Definition: A Coin-based contract refers to a contract valued in cryptocurrency, such as Bitcoin (BTC) contracts. When the price of cryptocurrency rises, investors can earn profits; conversely, when the price of cryptocurrency falls, investors will incur losses.
Collateral and settlement are conducted in cryptocurrencies: Contracts are collateralized and settled in BTC, ETH, BNB, and other cryptocurrencies.
Contract duration: Divided into perpetual contracts, quarterly contracts, and bi-quarterly contracts.
Contract multiplier: The contract multiplier represents the value of the contract. For example, the multiplier for BTC Coin-based contracts is 100 USD. However, the contract multipliers for mainstream cryptocurrencies other than BTC are typically 10 USD, although specific variations may exist.
Funding rate: Applicable only to perpetual contracts. Based on the price difference between the contract and the spot price, funding rates are paid to long or short traders every eight hours (duration may change depending on market conditions).
3. The difference between U-based contracts (BTCUSDT) and Coin-based contracts (BTCUSDCM)
Binance Contract Teaching (Coin-based Contract)
Preparation for starting contract trading:
1) Open a Binance account and complete KYC verification.
2) Before opening a Binance contract, you must complete the [suitability test], answering 14 questions about contract trading. This test is mainly designed to improve users' awareness of risks. 3) If you want to trade U-based contracts, you need to transfer USDT from the 'spot account' to the 'contract account'; if you want to trade Coin-based contracts, you need to transfer BTC or other cryptocurrencies from the 'spot account' to the 'contract account'.
1. Binance Coin-based contract trading teaching
The following will introduce the trading process and preparation matters using the Coin-based contract (BTCUSDCM) perpetual contract: To trade Coin-based contracts, you need to first purchase the corresponding cryptocurrency as margin. For example, to trade Bitcoin contracts, you must first transfer BTC into the contract account as margin; similarly, to trade Ethereum contracts, you need to transfer ETH as margin.
Step 2: Choose leverage and margin mode (cross/isolated). It is recommended for new entrants to keep leverage below 10 times (set here as 5X). I generally use the 'cross margin mode' and strictly set stop losses.
Cross margin mode means using all funds in the contract account as margin; isolated margin mode means using a certain amount of margin allocated to the position, with a maximum loss limited to the margin in that isolated position.
Coin-based contract (BTCUSDCM), the value of one contract is 100 USD. If you believe that the price of Bitcoin will rise, opening 10 long positions means you are going long on Bitcoin worth 1000 USD. You can open positions using either limit or market orders.
Step 3: After the order is filled, it will be displayed in [Position], showing the opening price, liquidation price, margin ratio, unrealized profit and loss, etc. Among them, the most important is the [Liquidation Price]. The closer the liquidation price is to the current price, the easier it is to get liquidated. The liquidation price shown in the figure is 1917.7, meaning that when the price of Bitcoin falls to 1917.7, it will be forcibly liquidated. Of course, the probability of dropping to this level is very low.
Coin-based contracts are particularly suitable for bullish markets. The expected profit/loss from going long is in BTC, and after realizing profits, you can sell in the spot market at a higher price to lock in profits!
3. Binance Contract Teaching (U-based Contract)
The operational processes for U-based contracts and Coin-based contracts are basically the same, with the difference being that for U-based contracts, USDT must be transferred into the account as margin, and profits and losses are also settled in USDT. You must first transfer USDT as margin.
Step 1: Find [Contract] - [U-based Contract] - [BTCUSD Perpetual] on the Binance official website. The amount to open is priced in Bitcoin, as shown in the image below, shorting 0.01 BTC requires about 85.39 USDT as margin.
Step 2: You can go long on ETH, ETC, and other contract currencies in the same way, all using USDT in the contract account as margin. Pay attention to the margin ratio.
And liquidation prices.
Unique advantages of U-based contracts:
Since all contract currencies can use USDT as margin, pricing is intuitive and easy to operate.
· U-based contracts are particularly suited for bearish markets, with expected profits from shorting in the stablecoin USDT, meaning the underlying asset will not incur losses due to market declines! For teaching on Binance's U-based contract trading, please refer to: Shorting Bitcoin Tutorial - How to Earn Coins from Shorts in the Cryptocurrency Market? This article is enough.
5. Binance Contract Data Query Tool
In the contract - data - market menu on the Binance website, you can query various data such as contract open interest, long-short ratios in the contract market, making it convenient for investors to observe current market trends.
Open interest: You can check the changes in Binance users' contract holdings from 5 minutes to 24 hours.
The net long and short account ratios of large holders: large holders are users whose margin balances rank in the top 20%. Each account is counted only once. Long account ratio = number of long accounts held by large holders / total number of large holders; short account ratio = number of short accounts held by large holders / total number of large holders; long-short account ratio = long account ratio / short account ratio.
Quick summary:
In a [U-based contract], both collateral and settlements are conducted in the stablecoin USDT. Users only need to prepare USDT to start trading, which most investors prefer. It is recommended that newcomers can start by trying U-based contracts.
Enter the Binance official website
Risk Warning: Margin trading with leverage involves high risks and may not be suitable for all investors. Before deciding to participate in contract trading, you should carefully consider your investment goals, experience level, and risk tolerance.
Summary
In summary, Coin-based contracts and U-based contracts, as the two primary forms of cryptocurrency derivatives trading, each have their own characteristics. They not only reflect the innovation of the cryptocurrency market but also provide investors with diverse trading tools. As the cryptocurrency ecosystem continues to mature, these trading tools are expected to further improve, providing investors with a safer and more efficient trading environment.
This concludes the introductory guide to cryptocurrency investment: What are Coin-based and U-based contracts? How to use them? For more information on Coin-based and U-based contracts, please follow Liang Ge's other articles!#美国加征关税 $BTC