U-Margined Contracts vs. Coin-Margined Contracts

In the world of cryptocurrency derivatives trading, U-Margined Contracts and Coin-Margined Contracts are two prevalent contract types. They differ significantly in terms of pricing currency, margin mechanism, profit/loss calculation, and more. Below is a detailed comparison:

I. Basic Definitions

• U-Margined Contracts (USDT-Margined Contracts) These contracts use the stablecoin USDT as both the pricing currency and margin. Regardless of the cryptocurrency being traded (e.g., BTC, ETH), all settlements are based on USDT.

• Coin-Margined Contracts (Crypto-Margined Contracts) These contracts use the underlying cryptocurrency itself as both the pricing currency and margin. For example, when trading a BTC contract, both the margin and profit/loss are calculated in BTC.

II. Core Differences

Aspect	U-Margined Contracts	Coin-Margined Contracts
Pricing Currency	Priced in USDT, with prices referenced against the USDT pair of the underlying asset (e.g., BTC/USDT).	Priced in the underlying cryptocurrency, with prices referenced against the USDT pair (e.g., USDT/BTC).
Margin Type	Requires USDT as margin, with the margin value fixed in USDT.	Uses the underlying cryptocurrency as margin (e.g., BTC for a BTC contract), with the margin value fluctuating based on the coin's price.
Profit/Loss Calculation	Profit and loss are settled in USDT, directly reflecting gains or losses in USDT, which are directly correlated with price movements of the underlying asset.	Profit and loss are settled in the underlying cryptocurrency (e.g., BTC for a BTC contract). The actual profit/loss in USDT is determined by converting the cryptocurrency at the current market rate.
Suitable Scenarios	- Ideal for users seeking to avoid exposure to price volatility of the underlying asset affecting their margin, especially during market turbulence, as USDT's stability reduces margin risks. - Suited for users calculating profits in fiat terms (e.g., USD), providing clear and straightforward profit visibility.	- Best for long-term holders of the underlying asset who wish to hedge risks (e.g., holding BTC while shorting BTC contracts). - Suited for traders with strong convictions about the price direction of the underlying asset, aiming to directly accumulate or reduce their cryptocurrency holdings.
Liquidation Risk	Margin is denominated in USDT, so liquidation triggers depend solely on the price movement of the underlying asset. Since USDT is pegged to $1, the liquidation logic is simpler.	Margin is denominated in the underlying cryptocurrency. If the cryptocurrency's price drops sharply, the margin value may shrink rapidly, increasing liquidation risks (e.g., a BTC-denominated contract is more vulnerable to liquidation during a BTC crash).
Holding Experience	No need to worry about the impact of the underlying asset's price volatility on the margin. Traders only need to focus on the price movement of the underlying asset against USDT.	Requires monitoring both the price of the underlying asset and the USDT exchange rate. If the asset's price rises but USDT depreciates, the actual profit in USDT may be offset (and vice versa).

III. Example: Trading 100 BTC Contracts

U-Margined Contract

• Margin: Assuming BTC is priced at $30,000 with 10x leverage, the required margin is approximately 3,000 USDT (100 contracts ÷ 10x).

• Profit/Loss: If BTC rises to $35,000, the profit is 5,000 USDT; if it drops to $25,000, the loss is 5,000 USDT. All profits and losses are settled in USDT.

Coin-Margined Contract

• Margin: Requires approximately 0.1 BTC (100 contracts ÷ 10x, calculated at $30,000/BTC, 0.1 BTC × $30,000 = $3,000).

• Profit/Loss: If BTC rises to $35,000, the profit is approximately 0.166 BTC (5,000 USDT ÷ $35,000/BTC), equivalent to $5,833 USDT. If it drops to $25,000, the loss is 0.2 BTC (5,000 USDT ÷ $25,000/BTC), equivalent to $5,000 USDT. Here, the profit/loss depends on both the BTC price and the USDT exchange rate.

IV. How to Choose?

• Opt for U-Margined Contracts When:

  • You are a novice trader looking to simplify profit/loss calculations and margin management.

  • During high market volatility, you prefer using stable USDT as the benchmark to reduce liquidation risks.

  • You think in fiat terms and want clear visibility of profits in USD.

• Opt for Coin-Margined Contracts When:

  • You hold the underlying asset long-term (e.g., BTC) and want to hedge your spot goods position with contracts.

  • You have a strong conviction about the price direction of the underlying asset and aim to directly increase or decrease your cryptocurrency holdings (e.g., going long on a BTC contract to accumulate more BTC if the price rises).

Summary

U-Margined Contracts are centered around USDT, making them ideal for users seeking stable pricing and straightforward risk management. Coin-Margined Contracts, on the other hand, revolve around the underlying cryptocurrency, catering to experienced traders who wish to leverage the asset's properties for trading or hedging. Your choice should align with your trading goals, risk tolerance, and market understanding.