An inverse futures contract is a derivative where the contract price is shown in one currency pair, but settlement and margin happen in the base cryptocurrency. Simply put, profits and losses are paid out in the underlying coin, not in stablecoins or cash. Traders use these contracts to speculate on a crypto asset’s price while keeping their margin in that same asset.
With inverse futures, traders can profit if the base asset moves as they expect, without needing a separate balance in fiat or stablecoins. The contract price is shown in a quote currency like USD, but profits or losses change the amount of base coin in the trader’s account. This allows traders to increase or decrease their holdings of the crypto they already own.
If you open a long position in an inverse contract, you increase your exposure to the quote currency and reduce your exposure to the base cryptocurrency as its price goes up. Profit or loss is calculated from the price difference and then converted into units of the base coin. Most platforms use this method so your final profit or loss is shown in the base coin. For example, if you hold a 1 BTC position, your BTC balance will change by a small amount based on your entry and exit prices.
Settlement and margin for inverse futures are handled in the base cryptocurrency. This means margin requirements, unrealized profits, and realized losses all appear as changes in the trader’s base coin balance. Since margin is held in a coin whose value can change, margin levels may shift even if the market moves as expected. Managing margin is different from contracts settled in stablecoins. Exchanges provide help pages that explain these differences and how they affect funding and liquidation.
Traders use inverse futures for different reasons. Some hedge their base coin holdings without converting to fiat. Others use leverage to make bigger bets while keeping their collateral in the asset they think will move. Market makers and arbitrage traders also use inverse contracts when they want exposure that matches their coin inventory.
Since margin and settlement happen in the base cryptocurrency, price swings in that coin affect both your account value and margin needs at once. This can cause faster or bigger liquidations during high volatility. Using leverage makes these risks higher. You should also consider funding rates, exchange rules, and the chance that converting profits or losses back to fiat or another asset could cost more during big price moves. Each exchange explains its own rules for funding and forced liquidation, so check these before trading.
Linear futures settle and use margin in a fiat-linked currency or stablecoin. This makes profit and loss calculations simple in fiat terms and keeps margin separate from the base asset’s price changes. Inverse contracts, on the other hand, tie margin and settlement to the asset itself, so your exposure changes as the market moves. Each type offers different tradeoffs, depending on whether you want stable settlement value or settlement in the native coin.
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