U-based and coin-based in contract trading: How to determine the most suitable method for you

The Core Differences Between the Two Contract Modes

In cryptocurrency derivatives trading, the two most common settlement methods are based on stablecoins and crypto assets. Among them, coin-margined contracts use cryptocurrencies directly as margin and settlement units, while U-margined contracts use stablecoins like USDT for pricing.

The operating logic of U-margined contracts is quoted and settled in USDT. Since USDT is pegged to the US dollar, investors can intuitively assess their returns from a fiat currency perspective. For example, if you earn 1000 USDT, it is almost equivalent to receiving a 1000 USD return. This mode is more friendly to traders accustomed to thinking in fiat currency, especially suitable for those who want to quickly understand actual gains.

Advantages and Applications of Coin-Margined Contracts

Coin-margined contracts adopt a reverse mode, using cryptocurrencies like BTC, ETH as the base currency for margin calculation. Taking BTC-margined contracts as an example, Bitcoin serves both as the initial margin and the profit and loss settlement unit.

The unique advantage of this mode is improving capital efficiency. Investors holding cryptocurrencies do not need to convert their assets into USDT to trade contracts or hedge. In other words, you can retain your Bitcoin or Ethereum holdings while using coin-margined contracts for risk management or yield enhancement.

Since coin-margined contracts inherently carry 1x leverage, during a bull market, profits are directly converted into an increase in the amount of cryptocurrencies you hold. For long-term bullish investors, or those seeking hedging in a bear market and increasing holdings in a bull market, this is an efficient asset allocation tool.

How to Choose the Most Suitable Trading Method

Scenario for choosing U-margined contracts: When you mainly hold USDT or other fiat equivalents, U-margined contracts offer an intuitive and convenient way to calculate returns. Additionally, U-margined trading pairs are usually more numerous, providing traders with more options.

Scenario for choosing coin-margined contracts: If you already hold Bitcoin or Ethereum and do not want to sell at low prices to acquire USDT, coin-margined contracts are an ideal solution. Especially in a long-term bullish market, trading with coin-margined contracts allows profits to be directly converted into increased holdings, making it an efficient way to increase crypto assets.

Risks and Summary

Regardless of the mode chosen, it is important to recognize that cryptocurrency trading involves significant risks. Leveraged trading amplifies both risks and returns, so investors should fully understand the involved risks before making decisions.

U-margined and coin-margined contracts each have their focus. The key is to determine based on your asset composition, trading goals, and risk tolerance. Investors with stablecoin assets tend to prefer the simplicity of U-margined contracts, while those holding cryptocurrencies and aiming for long-term accumulation can utilize coin-margined contracts to achieve both hedging and asset growth.