What is the difference between U-based and currency-based OKX contract? Which one is more suitable for novices?

OKX offers U-based contracts in USDT for stability and currency-based in crypto for direct exposure, each suited for different trading strategies and risk levels.

May 01, 2025 at 06:35 pm

Introduction to OKX Contracts

OKX is one of the leading cryptocurrency exchanges that offers a variety of trading products, including futures and perpetual contracts. Among these, U-based and currency-based contracts are two popular types that traders can choose from. Understanding the difference between these two types of contracts is essential for making informed trading decisions, especially for novices entering the cryptocurrency trading space.

Understanding U-based Contracts

U-based contracts on OKX are denominated in USDT, a stablecoin pegged to the US dollar. This means that the profit and loss from these contracts are calculated and settled in USDT. The primary advantage of U-based contracts is the stability they offer, as the value of USDT remains relatively constant compared to volatile cryptocurrencies.

• Settlement in USDT: All profits and losses are converted into USDT, providing a straightforward way to manage your funds.
• Leverage: U-based contracts often allow for high leverage, enabling traders to amplify their positions.
• Liquidity: These contracts typically have high liquidity due to the popularity of USDT.

Understanding Currency-based Contracts

Currency-based contracts, on the other hand, are denominated and settled in the underlying cryptocurrency, such as Bitcoin (BTC) or Ethereum (ETH). The profit and loss from these contracts are calculated and settled in the same cryptocurrency that the contract is based on.

• Settlement in Cryptocurrency: Profits and losses are directly in the cryptocurrency, which can be beneficial if you believe in the long-term value of that specific cryptocurrency.
• Volatility: These contracts can be more volatile due to the fluctuating value of the underlying cryptocurrency.
• Direct Exposure: Trading currency-based contracts provides direct exposure to the cryptocurrency without the need for conversion to another asset.

Key Differences Between U-based and Currency-based Contracts

The primary differences between U-based and currency-based contracts lie in their settlement currencies and the associated risks and benefits.

• Settlement Currency: U-based contracts settle in USDT, while currency-based contracts settle in the underlying cryptocurrency.
• Risk Management: U-based contracts may be less risky due to the stability of USDT, whereas currency-based contracts expose traders to the volatility of the underlying cryptocurrency.
• Profit and Loss Calculation: Profits and losses in U-based contracts are calculated in USDT, offering a more predictable outcome. In contrast, currency-based contracts calculate profits and losses in the cryptocurrency, which can fluctuate significantly.

Which is More Suitable for Novices?

For novices, the choice between U-based and currency-based contracts can significantly impact their trading experience. Here are some considerations:

• Stability and Predictability: U-based contracts might be more suitable for novices due to the stability of USDT. This can help new traders manage their risk more effectively, as they won't need to worry about the additional volatility of the underlying cryptocurrency.

• Simplified Profit and Loss: Since U-based contracts settle in USDT, calculating profits and losses is straightforward, which can be less confusing for beginners.

• Learning Curve: Currency-based contracts require a better understanding of the cryptocurrency market and its volatility, which might be challenging for novices.

• Exposure to Cryptocurrency: If a novice is particularly interested in gaining exposure to a specific cryptocurrency, currency-based contracts might be more appealing, though they come with higher risks.

Practical Example of Trading U-based Contracts

To illustrate how to trade U-based contracts on OKX, let's walk through a practical example:

• Open the OKX App or Website: Start by logging into your OKX account.
• Navigate to Futures Trading: Find the futures trading section, usually labeled as "Futures" or "Derivatives."
• Select U-based Contract: Choose the U-based contract you want to trade, such as BTC/USDT or ETH/USDT.
• Set Your Leverage: Decide on the leverage you want to use. Remember, higher leverage can amplify both gains and losses.
• Place an Order: Decide whether you want to go long (buy) or short (sell). Enter the amount you want to trade and set your entry price.
• Monitor Your Position: Keep an eye on your position and the market movements. Use stop-loss and take-profit orders to manage your risk.
• Close Your Position: When you're ready to exit your trade, close your position by executing the opposite order (sell if you were long, buy if you were short).
• Settle in USDT: Once your position is closed, your profits or losses will be settled in USDT.

Practical Example of Trading Currency-based Contracts

For currency-based contracts, the process is similar but with some key differences:

• Open the OKX App or Website: Log into your OKX account.
• Navigate to Futures Trading: Go to the futures trading section.
• Select Currency-based Contract: Choose the currency-based contract you want to trade, such as BTC/BTC or ETH/ETH.
• Set Your Leverage: Decide on your leverage level.
• Place an Order: Choose to go long or short, enter your trade amount, and set your entry price.
• Monitor Your Position: Watch your position closely and use risk management tools like stop-loss and take-profit orders.
• Close Your Position: Exit your trade by executing the opposite order.
• Settle in Cryptocurrency: Your profits or losses will be settled in the underlying cryptocurrency.

Frequently Asked Questions

Q: Can I switch between U-based and currency-based contracts easily on OKX?

A: Yes, you can switch between U-based and currency-based contracts on OKX by simply selecting the desired contract type in the futures trading section. However, ensure you understand the implications of each type before switching.

Q: Are there any fees associated with trading U-based and currency-based contracts on OKX?

A: Yes, OKX charges trading fees for both U-based and currency-based contracts. The fee structure can vary based on your trading volume and whether you are a maker or taker in the trade. It's important to review the fee schedule on the OKX website before trading.

Q: How does leverage work differently in U-based and currency-based contracts?

A: Leverage works similarly in both types of contracts, allowing you to control a larger position with a smaller amount of capital. However, the risk management and settlement currency can affect how leverage impacts your trading strategy. U-based contracts settle in USDT, which can provide more predictable outcomes, while currency-based contracts settle in the underlying cryptocurrency, which can be more volatile.

Q: Can I use the same trading strategies for both U-based and currency-based contracts?

A: While many trading strategies can be applied to both types of contracts, the choice of strategy may depend on your risk tolerance and market outlook. U-based contracts might be better suited for strategies that prioritize stability and predictability, while currency-based contracts could be more suitable for strategies that aim to capitalize on the volatility of the underlying cryptocurrency.