Understanding USDT-M and USDC-M Futures
USDT-M and USDC-M perpetual futures are derivative contracts settled and denominated in the stablecoins Tether (USDT) and USD Coin (USDC), respectively. Unlike traditional futures, these instruments have no expiry date, offering significant flexibility for traders. Their pricing and profit and loss (PnL) are directly quoted and calculated in these stablecoins, which simplifies the accounting process by removing the need to factor in the volatility of a base cryptocurrency.
Key characteristics of these futures include using USDT or USDC as the quote currency, having all PnL settled in the same stablecoin, and being perpetual in nature. This structure relies on a periodic funding fee mechanism to help keep the futures price aligned with the underlying spot market price.
Advantages of Stablecoin-Margined Futures
- Simplicity and Clarity: PnL is calculated directly in a stable currency like USDT or USDC. This eliminates the complexity of converting gains or losses from a volatile crypto asset into your account's denomination, making it easier to track performance.
- Capital Efficiency: These products support high leverage, often up to 125x on some platforms. This allows traders to control a large position size with a relatively small amount of capital, potentially amplifying returns (though it also increases risk).
- Flexible Holding Period: The perpetual nature of these contracts means there is no settlement date. This makes them suitable for a wide range of strategies, from ultra-short-term scalping to longer-term swing trades.
Disadvantages to Consider
- No Direct Asset Exposure: Your profit is solely derived from the price movement of the underlying asset, not from owning the asset itself. For instance, if you are long BTCUSDT and the price of Bitcoin rises, you profit from the price difference. However, you do not benefit from any potential appreciation of holding Bitcoin as an asset in your wallet.
- Funding Rate Costs: The mechanism that ties the futures price to the spot price involves a periodic funding fee. When this rate is positive, traders holding long positions pay a fee to those holding short positions. This can become a significant cost for positions held over multiple funding intervals, especially in strongly trending markets.
Essential Trading Parameters
Before engaging in futures trading, it is crucial to understand the key parameters that govern your positions and risk.
Leverage: This is a multiplier that allows you to open a position larger than your initial capital. While it can magnify profits, it also amplifies losses and significantly raises your liquidation risk. It is adjustable, often from 1x up to 125x.
Margin Mode: You can choose between two primary modes:
- Isolated Margin: The margin for a position is allocated and ring-fenced. If the position is liquidated, your maximum loss is limited to the margin you allocated to that specific trade. This is ideal for risk management and experimenting with new strategies.
- Cross Margin: Your entire account balance is used as collateral for all open positions. This can help prevent liquidation on one position if another is performing well, but it also risks your entire capital if a trade moves severely against you.
Fees: Trading fees are typically split into two types:
- Taker Fee: A fee paid when you place an order that is executed immediately against an existing order on the order book (typically 0.028% to 0.042%).
- Maker Fee: A fee paid when you place an order that adds liquidity to the order book by not being immediately filled (typically 0.0072% to 0.014%). Maker fees are often lower or even negative (a rebate) to incentivize providing liquidity.
Funding Rate: This is the periodic payment exchanged between long and short traders to anchor the perpetual futures price to the spot price. It is usually settled every eight hours.
For a complete view of current fee schedules and to understand all associated costs, it is wise to 👉 review the latest trading fee information directly on your platform.
Order Types and Execution Rules
Selecting the appropriate order type is fundamental to executing your trading strategy effectively.
Limit Order: An order to buy or sell at a specific price or better. It provides control over the entry or exit price but is not guaranteed to be filled if the market never reaches your specified price. Ideal for precise entries and exits.
Market Order: An order to buy or sell immediately at the best available current market price. Execution is virtually guaranteed, but the final price may be slightly different from the last traded price, especially in fast-moving markets. Ideal for entering or exiting a trade quickly.
Orders can also have specific time-in-force instructions:
- GTC (Good 'Til Canceled): The order remains active on the order book until it is filled or you manually cancel it.
- IOC (Immediately or Cancel): The order must be filled immediately to the fullest extent possible. Any portion that cannot be filled right away is canceled.
- FOK (Fill or Kill): The order must be filled in its entirety immediately upon placement. If it cannot be completely filled, the entire order is canceled.
Platforms also enforce minimum order value rules. For example, an order for a cryptocurrency with a notional value below a certain threshold (e.g., 5 USDT) will typically be rejected.
How Funding Rates Work
The funding fee is a core component of perpetual futures. It is calculated as:
Funding Fee = Position Value × Funding Rate
The funding rate itself is a more complex formula designed to balance the interest rate and the premium of the futures contract to the spot index:
Funding Rate (F) = clamp[ P + clamp(I - P, -0.05%, 0.05%), min. rate, max. rate ]
Where:
- I is the Interest Rate.
- P is the Premium Index.
This mechanism includes a damper of +/- 0.05% to prevent excessively high funding rates during periods of extreme volatility. The system calculates an average premium index over the funding period (e.g., 8 hours), weighting more recent data more heavily.
Understanding Index and Mark Prices
Index Price: The index price is a composite reference price derived from the spot prices of the underlying asset across several major cryptocurrency exchanges. Using a weighted average from multiple sources ensures the index is robust and less susceptible to manipulation or anomalous price movements on a single exchange.
Mark Price: This is arguably the most critical price for a futures trader. The mark price is a theoretically fair value for the futures contract, calculated using the index price and other factors. It is used to calculate your unrealized PnL and, most importantly, to determine liquidations. Using the mark price instead of the last traded price prevents unnecessary liquidations caused by short-term market illiquidity or "wick" events.
The mark price for perpetual contracts is typically calculated as the median of three values:
- The last traded price on the futures market.
- A price based on the index price and the latest funding rate.
- A price based on the index price and the moving average of the basis from the order book.
Risk Management and Liquidation
Robust risk control is essential in leveraged trading. Key concepts include:
Maintenance Margin Rate (MMR): This is the minimum margin percentage required to keep a position open. It is not a fixed number; it often increases with larger position sizes in a tiered system. Your maintenance margin is calculated as: Position Value × MMR.
Liquidation: If the unrealized loss on your position causes your margin balance to fall below the maintenance margin requirement, your position will be automatically liquidated by the platform. This is a forced closure at the best available market price to prevent further losses that could exceed your collateral.
Insurance Fund and Auto-Deleveraging (ADL): To protect traders, many platforms maintain an insurance fund to cover losses if a liquidated position cannot be closed at a price better than the bankruptcy price. In extreme cases, if the insurance fund is depleted, a process called Auto-Deleveraging (ADL) may be triggered, where profitable positions of opposing traders are automatically reduced to cover the loss.
To develop a solid risk management strategy and avoid liquidation, consider to 👉 explore advanced risk management tools.
Frequently Asked Questions
What is the main difference between USDT-M and Coin-M futures?
The core difference is the settlement currency. USDT-M futures are settled in a stablecoin (USDT or USDC), so your PnL is stable and intuitive. Coin-M futures are settled in the underlying cryptocurrency (e.g., BTC), meaning your profit or loss is also subject to the future price changes of that crypto asset.
How should a new trader select leverage?
Beginners should always start with low leverage, such as 1x to 5x. This allows you to learn how futures work and manage positions without taking on excessive risk. Leverage should only be increased gradually as you gain experience and confidence in your risk management skills.
Why did my position get liquidated?
Liquidation occurs when your margin balance is no longer sufficient to maintain your open position, meaning your Margin Ratio reached 100%. This is typically caused by the market moving against your position without you adding more margin to support it. Sudden, sharp market volatility can also trigger liquidation very quickly.
How often are funding fees paid/received?
Funding fees are typically exchanged between traders every eight hours. However, the exact schedule can vary by platform and specific contract. You can usually check the next funding time within the trading interface of your exchange.
Can funding rates be negative?
Yes. A negative funding rate means the perpetual futures price is trading below the spot price. In this scenario, short positions pay the funding fee to long positions. This often occurs in sustained bear markets.
What is the best way to avoid liquidation?
The most effective methods are using lower leverage, employing a conservative margin mode like isolated margin, consistently monitoring your positions, and setting stop-loss orders to limit potential losses before a liquidation is triggered.