Advantages of Shorting Using USDT-Margined Swaps

At $29 billion daily trading volume, according to Coingecko, Tether’s stablecoin, USDt, is the largest trading pair across crypto markets – it sometimes beats the top coin, Bitcoin (BTC). In spot, futures (whether short or long the market), and options market, USDt is flexing its muscles.

The USDt derivatives market is however growing faster than the rest of the financial contracts with the massive printing of Tether-dollars. In 2020, Tether reached a $16.5 billion market cap, representing over 400% in growth from $4.1 billion at the start of the year. With the market taking a breather after a skyrocketing six months due to DeFi rising, yield farming, and Bitcoin’s growth, some investors are looking for the best way to short their assets – USDt-margined swaps offers

A swap is an agreement between two parties to exchange sequences of cash flows for a set period of time.

How to safely short using USDt-margined swaps

Before starting to trade on USDt-margined there are a few pointers you should note. Here are some of these pointers:

• Regulation in your country on swaps.
• The security of the exchange.
• The liquidity of the exchange.
• Which cryptocurrency swaps are supported on the exchange?

Choice of exchange:

One of the best exchanges to take short positions on USDt-margined perpetual swaps is Huobi, which recently launched the product. Here is the guide on how to start trading Huobi’s USDt-margined perpetual swaps.

Advantages of shorting the crypto market using USDt-margined swaps

• Widespread acceptance and convenience

The USDt pair offers a convenient and easy to settle edifice across the crypto market, since users can trade various swaps holding only USDt. Trading a long or short position using USDt-margined swaps is more acceptable across the market than other crypto pairs.

Currently, Huobi Futures provides 10 kinds of USDt-margined swaps, giving users a wide array to select from, while more trading pairs are expected to be supported soon.

Some of the USDt-margined swaps available on the exchange include BTC/USDT, ETH/USDT, FIL/USDT, LTC/USDT, UNI/USDT, and LINK/USDT among others.

Huobi provides preferential trading rates for its USDt-margined swaps users. By introducing VIP Sharing Program, big users can switch to Huobi with nearly no cost and enjoy fee rebates as high as 0.025%.

Besides, the ease of calculating profits and losses using USDt also adds to the widespread adoption of the USDt-margined swaps.

• Hedge against volatility

As a kind of stable coin, USDt is backed by the dollar, which pegs its price to the value of dollar, therefore it is less volatile than other digital assets. Holding USDT as margin, traders do not have to worry about significant gaps in price fluctuation, which is common with most cryptocurrencies. This makes USDt-margined derivatives more practical for mainstream use in short trading cases.

Users who use USDt-margined derivatives do not need to worry about the currency devaluation risk that coin-margined futures face – remember the March bust?

Let’s illustrate by an example:

For a trader entering a short position using USDt-margined swaps, a drop in BTC price will save money in comparison to using a BTC-margined swap.

Imaging the current BTC price is at $10000, a trader using 0.1 BTC worth of margin to open short position with 10x leverage, and BTC price drops 1% after that.

Using the USDt-margined swaps, the trader opens 100 conts of short contracts on Huobi (face value of 1 BTC/USDt swaps = 0.01 BTC). The profit earned in the swaps market should be (10100 – 10000)*100*0.001=135USDt, and since USDt margin is quite stable, the total profit would be around $100.

As for coin-margined traders, 100 conts of short positions are opened. (face value 1BTC/USD swaps = 100USDt ) The profit earned in the swaps market is (1/9000 – 1/10000)*100*100 = 0.11111BTC≈1000USDt. However, since the 0.1 BTC margin devalued as well in the price fall (-10 USDt), the net profit would be 990 USDt in total, which is less than that of USDt-margined swaps.

Conclusion

As shown above, USDt-margined swaps is a convenient and non-volatile option for traders across the crypto market to bet on the future price of digital assets. Furthermore, the provision of a wide array of trading pairs on crypto derivatives exchanges such as Huobi, and widespread acceptance further show the advantage to trade with USDt margined swaps.

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Achal Arya

Achal Arya is a digital product designer and an entrepreneur. He did his masters degree in design from IIT Hyderabad and has a bachelors degree in Computer Science. He works in the Web3 domain and manages new developments at CoinGape. Follow him on X at @arya_achal or reach him at achal[at]coingape.com.