What Is Linear Contract?
A linear contract (or USDT-margined contract) is a derivatives instrument where both margin and PnL are denominated in a stablecoin (typically USDT or USDC). A $1 move in the underlying asset produces a fixed dollar PnL regardless of the underlying asset's price, creating a simple, linear payoff structure.
How Linear Contract Works
Linear contracts simplify trading because: PnL calculation is straightforward ($10,000 notional × 5% move = $500 PnL), margin requirements are stable (your collateral doesn't fluctuate with the underlying), and risk management is intuitive (your position size in stablecoin terms stays constant). This is why linear contracts have become the most popular derivatives format.
Why It Matters for Traders
Linear contracts are preferred for hedging and directional trading where you want clean, predictable exposure without the complexity of inverse contracts. The trade-off is that your collateral (stablecoins) earns no yield while deployed as margin, creating an opportunity cost compared to using the base asset as collateral in inverse contracts.