KuCoin Academy Lesson 13|Learn Futures Trading From Scratch: Recognize Various Types Of Contracts
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In the first week, we said that the most convenient and easiest way to get crypto assets is to directly purchase them through an exchange. In addition to knowing how to buy cryptocurrency using fiat currency, you also need to know how to make transactions between cryptocurrencies if you want to become a senior crypto investor.
In KuCoin Academy lesson 13, we will Futures Trading From Scratch: Recognize Various Types Of Contracts.
In lesson 11 of KuCoin Academy, we introduced what futures trading is. If you don’t know it yet, we suggest you start from the last lesson: A Bull Market Is Coming But Your Funds Are Limited. How To Amplify Your Profit?
Simply put, futures trading involves buying or selling a forward contract. According to this contract, the buyer will buy into assets at a predetermined price at a specified time (named delivery date) in the future, and the seller needs to deliver the asset at the predetermined price on the delivery date. There are many types of futures contracts today, such as inverse contracts, linear contracts, delivery contracts and perpetual contracts. So traders can flexibly formulate strategies via these contracts to obtain more profit.
Contents:
*Inverse contracts VS Linear contracts
*What is the difference between Inverse and Linear contracts?
*Perpetual contracts VS Delivery contracts
*What is the difference between Perpetual and Delivery contracts?
1. Inverse contracts VS Linear contracts
Inverse contracts are a coin-margined contract. If a trader would like to trade BTC, ETH, XRP, or EOS contracts, the underlying cryptocurrency has to be used as the margin to trade the respective contract. The underlying price rises and falls non-linearly with revenue. For example, in a BTC-margined contract, one of the most popular inverse contracts, you must use Bitcoin as the underlying asset. If you want to trade Ethereum contracts, you must do the same with Ethereum.
A linear contract, which is a USDT-margined contract, uses USDT to make contract transactions with cryptocurrencies, and the underlying prices rise and fall linearly with revenue. In a linear contract, USDT is used for trading and settlements, which means that as long as you hold USDT, you can directly perform contract transactions with multiple mainstream currencies.
2. What is the difference between USDT-margin and BTC-margin contracts?
Compared with BTC-margined contracts, USDT-margined contracts are quite simple, risk averse, and not very volatile. So, for users with fiat currency standards, they prefer USDT-margined contracts because of their low transactional costs and simple settlement; hedging users headed by miners or a few cryptocurrency believers who want to continue to hold a certain currency for long periods of time prefer BTC-margined contracts.
Of course, there are also many senior contract traders who will choose the contract type based on their judgments on market trends. When they think the short-term market is rising, they choose a BTC-margined contract to long; when they think the short-term market is falling, they choose a USDT-margin contract to short. In this way, they can make more profit.
3. Perpetual contracts VS Delivery contracts
Delivery contracts are one kind of cryptocurrency contract with a determined delivery date. The two parties to the contract will settle at a determined time, the delivery date, and deliver at the price agreed in the contract. KuCoin Futures has currently launched delivery contracts that include the nearby quarterly delivery contracts and forward quarterly contracts, BTC Quarterly 0925 and BTC Quarterly 1225 respectively. For example, BTC Quarterly 0925 contracts will settle at 16:00 on September 25, 2020 (UTC+8).
Perpetual contracts are a type of contract without a settlement time. Users can continue to hold perpetual contract positions until they are closed or forced to liquidate due to insufficient margins. KuCoin Futures has currently launched five perpetual contract products, the USDT-margined BTC Perpetual, ETH Perpetual, BCH Perpetual, BSV Perpetual and the BTC-margined BTC Perpetual.
4. What is the difference between Perpetual and Delivery contracts?
There are two differences between perpetual and delivery contracts:
First, the biggest difference between perpetual contracts and quarterly contracts is that the highest leverages are different. Currently, the BTC and ETH perpetual contracts that KuCoin Futures has launched provide up to 100x leverage, BCH and BSV perpetual contracts provide up to 50x leverage, and delivery contracts support up to 20x leverage. When compared, perpetual contracts are more risky, yet more speculative.
Second, Perpetual Contracts have funding. For perpetual contracts on most exchanges, the daily funding rate is 0.03%. KuCoin Futures has adjusted its USD/USDT lending rates for perpetual contracts. With this adjustment, the lending rate gap between the base currency and quote currency of the perpetual futures funding rate will shift from 0.030% to 0%, which means the funding rate and funding of perpetual futures will become 0 on the KuCoin Futures platform during normal periods.
For ordinary users, they can choose to invest in perpetual contracts or delivery contracts according to their own investment habits and preferences.
Institutional and professional investors often choose perpetual contracts and delivery contracts simultaneously, using a combination of the two products to form an even more complex investment strategy to minimize risk and improve efficiency of fund usage.
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