With the rapid development of the digital currency market, cryptocurrency derivatives trading is increasingly drawing the attention of investors. Among the various trading tools, contract trading has become a favored method for many investors due to its leveraged trading characteristics and high-risk, high-reward nature. However, for beginners, the concepts of cryptocurrency margin contracts and USDT-margined 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 Cryptocurrency Margin Contract?
A cryptocurrency margin contract is a derivative contract that uses cryptocurrency as collateral and settlement currency. In this model, investors use Bitcoin or other cryptocurrencies as collateral for trading. For example, in a Bitcoin perpetual contract, traders can use Bitcoin as margin and settle profits and losses in Bitcoin. A significant characteristic of this contract model is that investors do not need to convert their assets into fiat currency, allowing them to trade directly within the cryptocurrency ecosystem.
The advantage of cryptocurrency margin contracts lies in reducing the friction costs of converting to 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 decrease, increasing the risk of liquidation.
What is a USDT-Margined Contract?
In contrast, USDT-margined contracts use stablecoins like USDT (Tether) as margin and settlement currency. USDT, as a stablecoin pegged to the US dollar, has a relatively stable value, providing investors with a more intuitive way to price margins. In USDT-margined contracts, whether trading Bitcoin, Ethereum, or other cryptocurrencies, margins and profits/losses are priced and settled in USDT.
The main advantage of USDT-margined contracts is that they reduce the impact of cryptocurrency price fluctuations on margin. Due to the relative stability of USDT, investors can focus more on the price movements of the underlying asset rather than being overly concerned about the fluctuations of the margin itself. This model is particularly suitable for investors who seek a more predictable trading environment. Additionally, USDT-margined contracts make it easier to calculate profits and losses, as all are priced in a US dollar-pegged stablecoin.
From a risk management perspective, both types of contracts have their advantages. Cryptocurrency margin contracts are suitable for investors who are bullish on the long-term value of cryptocurrencies and wish to maintain exposure to crypto assets, while USDT-margined contracts are more suitable for investors seeking a relatively stable trading environment and wishing to reduce the impact of price volatility. The choice of which contract to use should depend on personal investment strategies, risk tolerance, and market judgment.
It is important to emphasize that regardless of whether you choose cryptocurrency margin contracts or USDT-margined contracts, cryptocurrency derivatives trading carries extremely high risks. Leveraged trading can lead to substantial losses beyond the principal, and investors must fully understand the trading mechanisms, strictly control their positions, and implement rigorous risk management strategies. For most investors, it is crucial to participate in cryptocurrency derivatives trading rationally and cautiously.
What is the difference between USDT-margined contracts and cryptocurrency margin contracts?
Binance's [Contract Trading] has two types of products: 1) USDT-Margined Contracts (USD-M Futures) and 2) Cryptocurrency Margin Contracts (Coin-M Futures). The easiest way to distinguish between the two is that margin contracts have a CM suffix (e.g., BTCUSD CM).
Contract types are divided into [Futures Contracts] and [Perpetual Contracts], with the difference being that perpetual contracts do not have a delivery date.
1. Characteristics and Advantages of USDT-Margined Contracts:
Definition: A USDT-margined contract refers to contracts valued in US dollars, such as Bitcoin/US Dollar (BTC/USD) contracts. It allows for leveraged long and short trading.
Settlement with assets pegged to the US dollar: Contracts are priced and settled in USDT or USDC.
Maturity Period: Perpetual Contracts, Quarterly Contracts, and Bi-Quarterly Contracts.
Clear Pricing Rules: Each contract specifies the delivery quantity of a single contract's underlying asset, also known as the 'contract unit.' For example, similar to the spot market, BTC/USDT, ETH/USDT, and BCH/USDT contracts represent one unit of their respective underlying assets.
Feature Advantage: In times of severe market volatility, USDT-margined contracts can effectively reduce the risk of significant price fluctuations. For example, in a declining market, the profits from short positions are calculated in the stablecoin USDT, eliminating losses.
2. Characteristics and Advantages of Cryptocurrency Margin Contracts:
Definition: A cryptocurrency margin contract refers to contracts valued in cryptocurrency, such as Bitcoin (BTC) contracts. When the price of cryptocurrency rises, investors can profit; conversely, when the price of cryptocurrency falls, investors will incur losses.
Collateral and settlement are conducted using cryptocurrencies: contracts are collateralized and settled in BTC, ETH, BNB, and other cryptocurrencies.
Contract Period: 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 a BTC margin contract is $100. The multipliers for mainstream cryptocurrencies other than BTC are usually $10, but specific cryptocurrencies may vary.
Funding Rate: Applicable only to perpetual contracts. Based on the price difference between the contract price 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 USDT-margined contracts (BTCUSDT) and margin contracts (BTCUSD CM)
Binance Contract Teaching (Cryptocurrency Margin Contract)
Preparation steps to start contract trading:
1) Open a Binance account and complete KYC verification.
2) Before opening Binance contracts, you must complete the [Suitability Test], answering 14 questions about contract trading. This test is mainly to raise awareness of risk among users.
3) If you want to trade USDT-margined contracts, you need to transfer USDT from the 'Spot Account' to the 'Contract Account'; if you want to trade cryptocurrency margin contracts, you need to transfer BTC or other cryptocurrencies from the 'Spot Account' to the 'Contract Account'; </p>
1. Binance Cryptocurrency Margin Contract Trading Tutorial
The following will introduce the trading process using the perpetual contract of cryptocurrency margin contract (BTCUSD CM).
Preparation: To trade cryptocurrency margin contracts, you need to purchase the corresponding cryptocurrency as margin first. For example, to trade Bitcoin contracts, you need to transfer BTC into the contract account as margin; similarly, to trade Ethereum contracts, you need to transfer ETH as margin.
Step 1: Log in to the Binance website www.binance.com, select 'Contract Bitcoin Margin Perpetual - BTCUSD CM.'
Step 2: Choose the leverage and margin model (full margin/isolated margin). It is recommended that new investors keep leverage below 10x (set here to 5x). I generally use the 'full margin model' and strictly set stop-loss.
The full margin model uses all funds in the contract account as margin; the isolated margin model allocates a certain amount of margin to each position, with the maximum loss being the margin allocated to that position.
In the cryptocurrency margin contract (BTCUSD CM), the value of one contract is 100 USD. If you believe that the price of Bitcoin will rise, opening 10 contracts means you are going long on Bitcoin worth 1000 USD. You can open a position with either a limit or market order.
Step 3: After the order is executed, it will be displayed in [Positions], showing the opening price, liquidation price, margin ratio, unrealized profits and losses, etc.
The most important factor is the [Liquidation Price]; the closer the liquidation price is to the current price, the easier it is to be liquidated. The liquidation price shown in the image is 1917.7, meaning that if Bitcoin's price drops to 1917.7, it will be forcibly liquidated. Of course, the probability of dropping to this price level is low.
Cryptocurrency margin contracts are particularly suitable for bullish markets, where the expected profit/loss from a long position is BTC; after realizing profits, it can be sold in the spot market at a higher price to lock in gains!
Three, Binance Contract Teaching (USDT-Margined Contract)
The operational process for USDT-margined contracts and cryptocurrency margin contracts is essentially the same, with the difference being that USDT needs to be transferred into the USDT-margined contract account as margin, and profits and losses are also settled in USDT. You need to transfer USDT as margin first.
Step 1: On the Binance official website, find [Contract] - [USDT-Margined Contract] - [BTCUSD Perpetual]. The quantity to open a position is denominated in Bitcoin, as shown in the image below, shorting 0.01 BTC requires approximately 85.39 USDT as margin.
Step 2: You can also go long on ETH, ETC, and other contract currencies in the same way, all using the USDT in the contract account as margin. Pay attention to the margin ratio and liquidation price.
Features and Advantages of USDT-Margined Contracts:
For Binance USDT-margined contract trading teaching, please refer to: Shorting Bitcoin Teaching - How to Earn Coins from Shorting in a Cryptocurrency Bear Market? Just read this article.
5. Binance Contract Data Query Tool
On the Binance website's contract-data-market selection, you can query various data such as contract position volume and market long-short ratios, making it convenient for investors to observe current market conditions.
Position Volume: You can query the changes in Binance users' contract positions over 5 minutes to 24 hours.
The net long and short account numbers of large holders account for: large holders refer to users in the top 20% by margin balance. An account is counted only once.
Long Account Ratio = Number of Long Account Holders / Total Number of Account Holders
Short Account Ratio = Number of Short Account Holders / Total Number of Account Holders
Long-Short Account Ratio = Long Account Ratio / Short Account Ratio
Quick Summary:
[USDT-Margined Contracts] are collateralized and settled in the stablecoin USDT, so users only need to prepare USDT to start trading. Most investors prefer this type of contract. It is recommended that newcomers start with USDT-margined contracts.
Enter the Binance official website
Risk Warning: Leveraged margin trading carries high risks and may not be suitable for all investors. Before deciding to participate in contract trading, one should carefully consider their investment objectives, experience level, and risk tolerance.
Summary
Overall, cryptocurrency margin contracts and USDT-margined contracts each have their own characteristics as the two main forms of cryptocurrency derivatives trading. They not only reflect the innovation of the cryptocurrency market but also provide investors with diversified trading tools. As the cryptocurrency ecosystem continues to mature, these trading tools are expected to be further improved, providing investors with a safer and more efficient trading environment.
The above is the introductory guide to cryptocurrency investment: What are cryptocurrency margin contracts and USDT-margined contracts? How to use them, along with more information about cryptocurrency margin and USDT-margined contracts!
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