Crypto trading has picked up really well in the past few years. Be it a bear or a bull market, futures trading offers opportunities you can capitalise on. So while exploring crypto futures trading, you will come across two types of futures: USDT-M and COIN-M futures.
In this article, we will take you through the main distinctions, advantages, and considerations of each to help you make informed trading decisions.
What Are USDT-M Futures?
USDT-M Futures trading refers to futures contracts that are margined and settled in USDT (United States Dollar Tether), a stablecoin pegged to the US dollar. The concept behind USDT-M futures is straightforward: you use USDT as collateral, and any gains or losses are realized in USDT.
For example, let’s imagine you want to speculate the price of Bitcoin and enter into a trade (can be a buy or a sell position) you can opt for BTC-USDT pair. To start trading you need to fund your futures wallet with USDT.
These futures are favored by traders who prefer stability and predictability in their trading capital, as USDT maintains a 1:1 value with the USD. This setup is especially appealing in volatile markets, where holding a stablecoin as collateral can reduce the risk of liquidation due to rapid price fluctuations.
What Are COIN-M Futures?
On the other hand, COIN-M Futures are margined and settled in the cryptocurrency itself (e.g., Bitcoin or Ethereum). Instead of using a stablecoin like USDT as collateral, COIN-M futures use the underlying asset. For example, if you’re trading Bitcoin futures, your margin is held in Bitcoin, and any profits or losses are realized in Bitcoin.
This type of futures contract appeals to traders who are bullish on the cryptocurrency itself, as it allows for potential gains in both the futures contract and the underlying asset’s value. However, it also introduces additional risk due to the inherent volatility of cryptocurrencies.
Main Differences Between USDT-M and COIN-M Futures
One of the most significant differences lies in the underlying asset used for margin and settlement. USDT-M futures use USDT as collateral, meaning your profits and losses are realized in a stable currency.
Conversely, COIN-M futures use cryptocurrency itself (usually Ethereum or Bitcoin), which can lead to gains or losses in the underlying asset’s value, adding another layer of risk and reward.
The settlement process: USDT-M futures are settled in USDT, offering a straightforward, fiat-like settlement. COIN-M futures, however, are settled in cryptocurrency, which can either amplify your gains if cryptocurrency’s value increases or deepen your losses if it decreases.
Minimal margin: USDT-M futures typically require a lower margin, as USDT’s value is stable. This lower margin requirement can reduce the potential for liquidation, making it a safer option for risk-averse traders.
COIN-M futures, however, may require a higher margin due to the volatility of cryptocurrencies, and this higher risk could lead to significant gains or losses.
Risk management differs significantly between the two types. With USDT-M futures, your risk is primarily tied to the futures contract’s performance, as the value of USDT remains constant.
In contrast, COIN-M futures expose you to the risk of the underlying asset’s price movement in addition to the futures contract, necessitating more sophisticated risk management strategies.
Liquidity is generally higher in USDT-M futures markets due to the popularity and stability of USDT. COIN-M futures might have lower liquidity depending on the underlying cryptocurrency, potentially leading to wider spreads and less favorable execution prices.
Trading pairs: USDT-M futures offer a broader range of trading pairs, making them more versatile for traders looking to diversify their strategies across multiple assets. COIN-M futures are often limited to major cryptocurrencies like Bitcoin and Ethereum, which might restrict trading options.
Market volatility impacts both futures types but in different ways. USDT-M futures provide a buffer against extreme price swings because of stable collateral. COIN-M futures, on the other hand, can be highly volatile, reflecting both the futures contract and the underlying asset’s price movements, which could lead to more significant gains or losses.
Advantages of USDT-M Futures
Simplicity and Stability: USDT-M futures are easier to understand and manage because your profits and losses are in USDT, a stablecoin. This makes it simpler to calculate your gains in fiat terms and reduces the impact of market volatility on your collateral. This stability simplifies the process of calculating your gains and losses in fiat terms, making it easier to track your overall portfolio performance without worrying about fluctuating collateral values.
Lower Volatility Impact: The use of USDT as collateral minimizes the risk of liquidation during volatile market conditions, making it a safer option for traders who prefer stability. In highly volatile markets, this stability is a significant advantage. It minimizes the risk of liquidation because your collateral doesn’t fluctuate wildly with market movements.
Advantages of COIN-M Futures
Higher Potential Returns: By using cryptocurrency as collateral, COIN-M futures offer the potential for higher returns if the underlying asset appreciates in value. This dual potential for gains can be attractive to traders with a bullish outlook on specific cryptocurrencies.
Incentives for Holding: COIN-M futures encourage holding and accumulating cryptocurrencies, aligning with the long-term strategies of many crypto enthusiasts.
Enhanced Security and Decentralization: Some traders prefer COIN-M futures because they can keep their assets in cryptocurrencies, which they may perceive as more secure and decentralized compared to stablecoins like USDT.
Choosing Between USDT-M and COIN-M Futures
When deciding between USDT-M and COIN-M futures, consider your risk tolerance, market outlook, and trading goals. USDT-M futures are ideal for those seeking stability and lower risk, while COIN-M futures suit traders looking for higher risk-reward scenarios and those who are confident in the long-term appreciation of cryptocurrencies.
How to get started with USDT-M Trading on Bitunix?
To get started with USDT-M futures trading, you need to create an account on Bitunix and complete your KYC. Once done, you can either fund your account with crypto by choosing deposit or you can buy crypto via Via Third-Party on Bitunix. We offer third party on-ramp crypto on Bitunix along with different choice of payment methods like credit and debit cards, Apple pay and bank transfer.
To deposit crypto in your Bitunix wallet, click on Assets from the navigation menu and click on spot account.
Next, click on deposit.
Then choose the cryptocurrency you want to deposit and the network. (Choose the network carefully. If you choose the wrong network, your crypto funds may get lost forever)
Once you have chosen the currency and the network you need to copy the deposit address. Next, head over to the wallet where you have your funds. Click on send and paste the address you just copied and click send.
Now, you are ready to start trading in USDT-M futures.
Conclusion
In summary, both USDT-M and COIN-M futures have unique advantages and risks. Understanding these differences is essential for aligning your trading strategy with your financial goals. At Bitunix we offer a wide range of USDT-M trading pairs with tools and features to ensure you have more control over your trades.
