# Linear vs Inverse Contracts: USDT-Margined vs Coin-Margined > Linear contracts are margined and settled in stablecoins like USDT; inverse contracts use the coin itself. Compare PnL formulas, risks and uses. Updated: 2026-09-24 **A linear contract is margined and settled in a stablecoin such as USDT or USDC, while an inverse contract is margined and settled in the underlying coin itself, such as BTC.** Both can be dated futures or [perpetual futures](/learn/what-are-perpetual-futures). The difference is which asset you post as collateral and which asset your profit and loss is paid in, and that changes the PnL math. ## Key takeaways - **Linear** (USDT- or USDC-margined): collateral and PnL are in a **stablecoin**. - **Inverse** (coin-margined): collateral and PnL are in the **coin**, while the contract is quoted in USD. - Linear PnL = **size × (exit − entry)**. Inverse long PnL = **USD value × (1 ÷ entry − 1 ÷ exit)**, paid in the coin. - Inverse PnL is **non-linear**: equal dollar moves up and down produce different coin amounts. - A **long inverse position** has double exposure because the collateral also falls when price falls. - A **short inverse position** sized to your coin holding can lock in a roughly **stable dollar value**. ## How linear contracts work On a linear contract, you post a stablecoin as margin, the contract size is measured in the coin, and gains and losses are paid in the stablecoin. Many large CEXs, including Binance and Bybit, list most of their perpetuals as USDT-margined linear contracts, and many list USDC-margined ones too. **Linear PnL (long) = size × (exit price − entry price)** **Linear PnL (short) = size × (entry price − exit price)** Example: you buy **0.5 BTC** of a BTC/USDT linear perp at **$60,000** and close at **$63,000**. - PnL = 0.5 × ($63,000 − $60,000) = **+$1,500 USDT** If the price had fallen to $57,000 instead, PnL = 0.5 × ($57,000 − $60,000) = **−$1,500 USDT**. Equal moves give equal and opposite results. That symmetry is why the contract is called linear. ## How inverse contracts work On an inverse contract, each contract is worth a fixed number of US dollars, you post the coin as margin, and PnL is paid in the coin. Coin-margined BTC contracts have long been a standard product on major derivatives exchanges. Because PnL is measured in the coin while the contract is sized in dollars, the formula uses the reciprocal of price: **Inverse PnL (long, in coin) = USD value × (1 ÷ entry price − 1 ÷ exit price)** **Inverse PnL (short, in coin) = USD value × (1 ÷ exit price − 1 ÷ entry price)** Example: you go long **$30,000** of a BTC inverse perp at **$60,000**, which is 0.5 BTC of exposure at entry. **Price rises to $63,000:** - 1 ÷ 60,000 = 0.0000166667 - 1 ÷ 63,000 = 0.0000158730 - PnL = $30,000 × (0.0000166667 − 0.0000158730) = **+0.02381 BTC** - In dollars at the exit price: 0.02381 × $63,000 ≈ **+$1,500** **Price falls to $57,000:** - 1 ÷ 57,000 = 0.0000175439 - PnL = $30,000 × (0.0000166667 − 0.0000175439) = **−0.02632 BTC** - In dollars at the exit price: −0.02632 × $57,000 ≈ **−$1,500** The dollar results match the linear contract, but the coin amounts do not. A $3,000 move up earns 0.02381 BTC, while a $3,000 move down costs 0.02632 BTC. This asymmetry is what makes the contract inverse. ## Side-by-side comparison | Feature | Linear (USDT/USDC-margined) | Inverse (coin-margined) | |---|---|---| | Collateral | Stablecoin | The underlying coin | | PnL paid in | Stablecoin | The underlying coin | | Contract size | In coins (for example 0.001 BTC) | In USD (for example $100 per contract) | | PnL formula (long) | size × (exit − entry) | USD value × (1/entry − 1/exit) | | PnL shape | Linear | Non-linear in coin terms | | Collateral value | Stable in dollars | Moves with the coin price | | Multi-asset margin | One stablecoin can back many markets | Usually one coin per market | | Typical users | Most active traders, arbitrageurs | Coin holders, miners, coin-denominated funds | ## The collateral effect The biggest practical difference is what happens to your margin. On a linear contract, your USDT collateral is worth the same whether BTC goes up or down. On an inverse contract, your BTC collateral gains or loses dollar value with every price move. **Long inverse = double exposure.** If you post 1 BTC as margin and go long an inverse contract, a price drop hits you twice: the position loses coins and each remaining coin is worth fewer dollars. With [leverage](/learn/what-is-leverage-in-crypto), [liquidation](/learn/what-is-liquidation) can arrive sooner than on a comparable linear position. **Short inverse = synthetic dollar.** Suppose you hold **1 BTC** at **$60,000** and short **$60,000** of an inverse contract. If BTC falls to $50,000: - Short PnL = $60,000 × (1 ÷ 50,000 − 1 ÷ 60,000) = $60,000 × (0.00002 − 0.0000166667) = **+0.2 BTC** - Total holdings = 1.2 BTC × $50,000 = **$60,000** The dollar value stays roughly unchanged, before funding and fees. This is why miners and long-term holders use inverse shorts to hedge. It is also a common way to run a [delta-neutral](/learn/what-is-delta-neutral-trading) position without ever holding stablecoins. ## Funding and arbitrage considerations Both types of perpetual contract pay a funding rate, but the linear and inverse perps for the same coin on the same exchange are separate markets and can have different rates. On inverse perps, funding is paid in the coin. When comparing rates or building a [funding rate arbitrage](/learn/funding-rate-arbitrage-guide) trade, check which contract type each leg uses, because a hedge that pairs a linear leg with an inverse leg does not stay neutral in size as the price moves. ## Common mistakes - **Using the linear formula on an inverse contract.** Coin PnL on inverse contracts depends on 1 ÷ price, not on price. - **Forgetting collateral risk.** A long inverse position with coin collateral carries more dollar risk than its notional suggests. - **Mixing contract types in a hedge.** A linear long and an inverse short of equal dollar size drift apart as the price moves and need rebalancing. - **Misreading contract size.** Inverse contracts are often counted in USD per contract, linear ones in coin units. Confirm the multiplier before sizing. ## How ArbTide helps Use the [PnL calculator](/tools/pnl-calculator) to check profit and loss on a position, and the [liquidation price calculator](/tools/liquidation-price-calculator) to see how leverage affects your liquidation level. The [live funding rates page](/funding-rates) lets you compare funding across venues before choosing where to place each leg. ## Frequently asked questions ### What is a linear contract in crypto? A linear contract is a futures or perpetual contract that is margined and settled in a stablecoin such as USDT or USDC. Profit and loss is linear in price: size × (exit price − entry price) for a long. ### What is an inverse contract in crypto? An inverse contract is quoted in US dollars but margined and settled in the underlying coin, such as BTC. Profit and loss is paid in the coin and follows the formula contract value in USD × (1 ÷ entry price − 1 ÷ exit price) for a long. ### What is the difference between USDT-margined and coin-margined futures? USDT-margined futures use a stablecoin as collateral and pay PnL in that stablecoin, so your collateral value does not move with the coin. Coin-margined futures use the coin as collateral and pay PnL in the coin, so your collateral value rises and falls with the coin's price. ### Why would anyone use inverse contracts? Traders who already hold the coin can use it as margin without converting to stablecoins, and miners or long-term holders can hedge the dollar value of their coins by shorting inverse contracts. Some traders also prefer to measure performance in the coin rather than in dollars. ### Are inverse contracts riskier than linear contracts? A long inverse position carries extra risk because the collateral itself is the coin, so a price drop reduces both the position and the collateral value at once. This makes liquidation happen sooner than many traders expect.