Choosing the right contract type
Linear futures (USDT-margined): You post stablecoin margin, and your P&L is in stablecoins. $1 profit is always $1.
Inverse futures (coin-margined): You post BTC or ETH as margin, and P&L is in that asset. Profit in BTC varies in USD value.
Most major exchanges offer both types. Binance calls them USDT-M and COIN-M; others use similar naming.
Linear P&L is straightforward: your return is fixed in USD terms, matching your expectation from the basis spread.
Inverse P&L is non-linear: if BTC price moves, your BTC-denominated profit changes in USD value.
For basis trading, this adds a layer of complexity. Your hedge is not perfect in USD terms with inverse contracts.
Example: You capture 0.1 BTC profit on an inverse trade. If BTC drops 10%, your USD profit is 10% less than expected.
Linear contracts are simpler for basis trading. Your expected return in USD matches the basis spread.
Inverse contracts introduce basis risk on your P&L itself. The trade captures basis, but your profit fluctuates with asset price.
For pure cash-and-carry with delivery futures, linear contracts provide cleaner economics.
Some traders prefer inverse if they want exposure to the asset anyway—their BTC holdings grow in BTC terms.
Linear contracts (especially USDT-margined) typically have higher liquidity and tighter spreads.
Inverse contracts may have thinner order books, leading to higher slippage on entry and exit.
Delivery futures availability varies by exchange. Not all delivery contracts are available in both types.
Check liquidity before committing. Higher gross basis on an illiquid inverse contract may net less after slippage.
FYOS tracks both inverse and linear delivery futures where available.
Inverse contracts receive additional haircuts in model_adjusted_basis_apr due to their non-linear P&L characteristics.
This reflects the added uncertainty: your USD return depends on asset price movements during the holding period.
When comparing opportunities, consider whether the inverse premium (if any) justifies the added complexity.
| Aspect | Linear (USDT-M) | Inverse (COIN-M) |
|---|---|---|
| Margin asset | Stablecoins (USDT/USDC) | Underlying (BTC/ETH) |
| P&L currency | Stablecoins | Underlying asset |
| P&L calculation | Linear (simple) | Non-linear (complex) |
| USD return certainty | High | Lower |
| Typical liquidity | Higher | Lower |
| Basis trade complexity | Lower | Higher |
| Best for | USD-focused returns | Asset accumulators |
Linear (USDT-margined) contracts are simpler and recommended for beginners. The P&L is predictable in USD terms, making it easier to understand your actual returns.
Sometimes inverse contracts show higher gross basis due to lower liquidity or different demand dynamics. But after adjusting for non-linear P&L risk and slippage, the advantage often disappears.
Yes, but track them separately. The different P&L behaviors make aggregation complex. Some traders use inverse for long-term holds and linear for short-term opportunities.
FYOS applies an inverse contract haircut to model_adjusted_basis_apr, reflecting the uncertainty in USD returns due to non-linear P&L. This helps compare inverse and linear opportunities fairly.
Potentially. Receiving P&L in BTC vs USD may have different tax implications depending on your jurisdiction. Consult a tax professional familiar with cryptocurrency trading.
Compare contract types
FYOS shows both contract types with appropriate risk adjustments. Free beta access.
This content is for educational purposes only. Trading involves risk of loss. Always conduct your own research before making investment decisions.
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