In contract trading, U-based contracts and currency-based contracts are two common trading methods. They differ in settlement currency, risk management and profit-making methods, and their application scenarios and escape modes also have their own characteristics.
Settlement currency: USDT is used as margin and settlement unit. Users use USDT to trade, and profits and losses are calculated in USDT.
Applicable scenarios:
For traders who wish to avoid the volatility of cryptocurrencies, the U-margin contract provides a stable margin basis (as USDT is pegged 1:1 to the US dollar).
For investors who are accustomed to using fiat currency, this type of contract is more intuitive because profits and losses are expressed in stablecoins.
Advantages:
High stability avoids changes in margin value due to currency price fluctuations.
Suitable for investors who are bullish or bearish on cryptocurrency prices and want their funds to always be kept in stablecoins.
shortcoming:
It is impossible to enjoy the double benefits brought by the rise in cryptocurrency prices (such as the holding benefits in the currency standard).
2. Currency-based contracts
Settlement currency: Bitcoin or other cryptocurrencies are used as margin, and profits and losses are also settled in the cryptocurrency. For example, using BTC-margined contracts, profits and losses are expressed in BTC.
Applicable scenarios:
Coin-based contracts are suitable for investors who want to hold cryptocurrencies for a long time and increase the amount of coins they hold through contract trading.
Coinbase is suitable for traders who are optimistic about the long-term growth of cryptocurrencies.
Advantages:
When the value of the cryptocurrency you hold increases, you can not only benefit from the profit of the contract, but also enjoy the double benefit of the increase in the price of the currency by holding the currency.
shortcoming:
Currency price fluctuations have a greater impact on positions, and a sharp drop in prices may lead to higher risks.
3. Differences in escape patterns
U-standard contract:
Since USDT is used as the settlement unit, the risk of U-based contracts is relatively fixed. If the market fluctuates greatly, users can withdraw quickly and convert it into USDT stablecoins, thereby reducing the risk brought by market fluctuations. The escape mode is relatively stable and suitable for short-term traders or risk averse people.
Currency-based contracts:
The escape mode of the coin-based contract is more complicated, especially in a bear market. The decline in the price of cryptocurrencies not only affects the profit and loss of the contract, but also greatly reduces the value of the cryptocurrencies held. When escaping the contract, even if you close the position, you will still hold the falling currency. Therefore, the risk management of the coin-based contract requires a stricter stop-loss strategy.
4. Summary:
U-standard contract: suitable for investors who seek stable returns and want to avoid the risk of cryptocurrency fluctuations. It has high stability and is suitable for daily short-term transactions.
Coin-based contracts: Suitable for investors who are optimistic about the long-term growth of cryptocurrency prices. Its double benefits attract traders who believe in the long-term potential of cryptocurrencies, but it also comes with higher volatility risks.
The respective applications depend on investors’ risk appetite, market expectations, and long-term views on cryptocurrencies.
