Recently, while studying contract trading, I found that many people don't have a deep understanding of coin-margined contracts. So I organized some of my thoughts.

First, it's essential to clarify the most basic distinction. Coin-margined contracts use coins as collateral, with profits and losses calculated in coins; U-margined contracts always calculate in U. This difference may seem minor, but it actually determines the entire trading logic.

I found that the most interesting aspect of coin-margined contracts is that they inherently have a one-to-one long property. Think about it: you first buy coins with U and hold them, then open a contract. The rise and fall of the coin price will directly affect your spot holdings. What does this mean? A one-to-one short contract on a coin-margined contract is almost zero leverage, and it will never liquidate. When the coin price falls, the contract gives you more coins; when the coin price rises, the contract reduces coins, but the total market value remains unchanged.

A key point—Bitcoin's funding rate is mostly positive, providing about 7% annual return. So, just doing a one-to-one short arbitrage on Bitcoin is equivalent to steadily earning this funding rate income, with no risk at all. If you get this right, your returns can surpass most stock investors.

Next, let's look at the margin mechanism of coin-margined contracts. They use coins as collateral but calculate based on the U value at the time of opening the position. The crucial part is that the rise or fall of the coin price doesn't directly affect the margin or liquidation price. Considering the inherent long property of coin-margined contracts, a one-to-one long position will liquidate if the coin price drops by 50%.

Here's an interesting operation: suppose you use 10,000 U to buy 10,000 coins to open a position. When the coin price drops close to 50%, you need to add margin. At this point, you can use the same 10,000 U to buy 20,000 coins to top up the margin, preventing liquidation forever. Even better, when the coin price is low, you buy more coins with the same U. If the price rebounds, the coins you bought at the low will generate gains. Originally, you had 10,000 coins worth a loss of 5,000 U; after topping up, you have 30,000 coins. As long as the price returns to 67% of the opening price, you break even.

Now, consider the case of 3x short. Coin-margined 3x short contracts will liquidate if the coin price rises by 50%. Suppose you opened a position with 20,000 U, buying 20,000 coins, with 10,000 coins used for 3x short. When the coin price rises 50% and approaches liquidation, you use the reserved 10,000 coins to top up the margin. At this point, those 10,000 coins are worth 15,000 U, but you only need to add coins worth 10,000 U to push the liquidation price up by a factor of two. This makes it much safer than U-margined contracts.

In summary, coin-margined contracts do have advantages, but the key is to control the leverage. A leverage of 1x to 3x is sufficient; higher leverage only amplifies risk. I operate based on this logic myself.