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Binance futures is one of the platforms and probably the biggest exchanges which offers more than 500 pairs to trade with. Traders can choose to trade between the two types of Crypto derivatives including COIN-Margined Contracts and USD-Margind Contracts.
The settlement process of COIN-margined contracts is settled and collateralized in the base cryptocurrency. People who like to take the opportunity during the growth times mostly choose these contracts. While on the other hand, USD-Margined Contracts provide settlement in both USDT and BUSD and it is considered to be a much safer option during higher time frame downtrends.
What are COIN-Marginated Contracts? Its Pros and Cons
COIN-Marginated contracts represent the value of the underlying currency and it allows the user to get exposure to the currencies without owning them. They provide opportunities for investors to take part in the growth of the currency without converting. These financial tools offer an alternative way to gain exposure to cryptos without owning them. They also provide a unique opportunity for long-term investors to participate in the future growth of markets without converting their crypto assets to stablecoins.
COIN-Marginated benefits the HODLers to hold their contracts even when the Scrip turns red. The holders are not obligated to sell their contracts at Compromised prices. Even in the case of losses in the portfolio, the COIN-Marginated trade profits can make up for the losses.
Despite the multiple and long-term benefits, Contract holders and traders should follow precautions while trading these financial instruments as the collateral allocated for trading can get affected by the high volatility of the crypto market.
For example, traders have to really careful while trading COIN-Marginated Contracts because when any major coin goes in a downtrend for a prolonged period of time the investors may have large effects on their portfolio since the underlying value of the coin decreases.
What are USD-Marginated Contracts? Its Pros and Cons
These contracts are settled in USDT and BUSD. USD-Marginated contracts are such financial instruments that traders are able to buy or sell at a predetermined price at a specific time in the future. Traders are more attracted to these contracts as it gives them exposure without asking to own them.
Most of the traders prefer to trade in the USD-Marginated contracts as it doesn’t restrict the traders to any market conditions. Even if the cryptos are bearish one can buy high and sell low and it also allows users to trade neutral strategies and make money with leverage. With these contracts and leverage options, traders can make money even on the smallest of fluctuations.
One of the biggest benefits of USD-Marginated contracts is that traders can trade the market both ways while keeping USDT or BUSD as collateral. During times of high volatility, these contracts are very helpful as they give high purchasing power and versatility to trade in both directions.
Even after the multiple benefits of trading these financial instruments top-notch risk management strategy has to be used as over-leveraging is one of the biggest problems while trading these securities. Overleveraging can increase transaction cost, the chance of account liquidity, and amplifies losses.
For example, leverage is a very big enemy of traders especially on USD-Marginated contracts since a high leverage can be taken with very less collateral, and smaller movements in the scrip as low as 0.5-1% can liquidate account value.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
