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Here’s What Experienced Users Need to Know About Trading on the KuCoin Exchange: Part Two

By Justino | An Angle of Truth | 20 Oct 2021


Let’s look at Futures trading now. These markets can amplify your profit, but will also expose you to increased risks. So be careful. 

Futures trading is like as Contract trading. Spot trading follows the traditional way of trading, which is cash on delivery, while futures trading is buying and selling the standardized forward contracts. According to this forward contract, you could 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 at the delivery date.

Example:

‘A’ thinks that Bitcoin may rise from $10,000 to $12,000 in 3 months, so he/she goes to ‘B’ and signs a Bitcoin contract. According to the contract, they will not close the transaction immediately, but ‘A’ can buy 1 Bitcoin from ‘B’ at a price of $10,000 after 3 months. Three months later, the two parties complete the transaction under the previously signed contract. Who will earn? This depends on the price of Bitcoin after 3 months. If Bitcoin is already $12,000, then ‘A’ spent $10,000 to buy 1 Bitcoin and made $2,000; but if the price of Bitcoin falls to $8,000, ‘A’ still needs to spend $10,000 to buy 1 BTC from B, and so ‘B’ made $2,000 because he/she sold the Bitcoin worth $8,000 for $10,000.

  • What are the Differences between Margin and Futures Trading?

First, their markets are not the same. Contract trading needs to build an independent derivatives trading market.

Second, the number of tokens the two support are also different. Margin trading usually supports more tokens, while contract trading often only supports mainstream tokens.

Then, the two have different leverages. Currently, margin trading on the vast majority of trading platforms supports 1–10x. For example, KuCoin margin trading supports 10x leverages, while contract trading usually supports even higher leverages of 10x, 20x, 50x, and 100x, which are currently the highest multiple KuCoin supports.

Finally, the trading fees are also different. Margin trading produces loan and trading fees. It calculates loan fees when you lend the asset, and it applies the interest fee daily. It charges futures trading fees on trading (or deliveries). Meanwhile, the margin trading fee rate is often the same as spot trading, usually around 0.1%, while the contract trading fee rate is usually around 0.02–0.05%.

  • Inverse contracts vs. Linear contracts

Inverse contracts are a coin-margined contract. If you 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, you use USDT for trading and settlements, so as long as you hold USDT, you can directly perform contract transactions with multiple mainstream currencies.

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.

  • Perpetual contracts vs. Delivery contracts

Delivery contracts are a 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 launched delivery contracts that include the nearby quarterly delivery contracts and forward quarterly contracts, BTC Quarterly 0925 and BTC Quarterly 1225, respectively.

Perpetual contracts are a type of contract without a settlement time. You can continue to hold perpetual contract positions until they are closed or forced to liquidate because of insufficient margins. KuCoin Futures launched five perpetual contract products, the USDT-margined BTC Perpetual, ETH Perpetual, BCH Perpetual, BSV Perpetual and the BTC-margined BTC Perpetual.

 

Disclaimer: This content is not financial advice, and for informational purposes.


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Justino
Justino

Self-Published Author. Editor.


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