Linear and inverse contracts
Linear contracts are margined and settled in a stablecoin such as USDT; inverse contracts are margined and settled in the crypto itself, such as BTC. That changes how profit and collateral behave.
How it works
Linear contract: margin and profit are in USDT or USDC. Position size is set in coins, and profit is simple: quantity × price change. The BTC price does not affect the value of your margin, which makes linear contracts easier for beginners.
Inverse (coin-margined) contract: margin is in BTC, while contract size is set in dollars, for example 1 contract = $100. Profit and loss are paid in BTC: size in $ × (1/entry price − 1/exit price). That makes profit non-linear in price.
An inverse long carries double risk: when price falls you lose on the position and your BTC margin is also worth fewer dollars. On the other hand, an inverse short with BTC margin works as a hedge: the dollar value of your coins barely changes.
Linear: long 0.2 BTC from $50,000 to $60,000. Profit 0.2 × $10,000 = 2,000 USDT.
Inverse: long $10,000 from $50,000 to $60,000. Profit 10,000 × (1/50,000 − 1/60,000) ≈ 0.0333 BTC, about $2,000 at $60,000. Had price fallen to $40,000, the loss would be 0.05 BTC, and the margin itself would be worth fewer dollars as well.
A common mistake is opening a leveraged long on an inverse contract without realizing the BTC margin falls with the price. Liquidation comes sooner than expected. Unless you are hedging coins you already hold, start with linear USDT contracts.
Questions and answers
What are linear and inverse contracts in simple terms?
With linear contracts your margin and profit are in a stablecoin. With inverse contracts they are in the coin itself, such as BTC.
Should a beginner use USDT-margined or coin-margined contracts?
Usually USDT-margined: profit is easier to calculate and your margin does not change value with the market.
Why do inverse contracts exist?
They let you trade without selling your coins and hedge them: an inverse short protects the dollar value of your BTC.
Related terms
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Updated: 2026-10-19