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# What are the Inverse and Vanilla Contracts? | MyCoinStory Trading School(MyCoinStory.com)

10 months ago

Latest Post MCS | 2/24 System Upgrade Completed public

Welcome to MCS, the world-class derivatives trading platform where traders ALWAYS come first.

Did the title make you think about 🍨Vanilla ice cream🍨?

In this article, we will explain the vanilla and inverse contracts in perpetual contracts. MCS is a derivatives platform that provides inverse perpetual products. However, we will look at the vanilla products which many are familiar with before moving on to Inverse.

## What is Plain Vanilla?

As it comes from the name 'plain', it is the most basic version of a financial instrument, usually options, bonds, futures and swaps. It is the opposite of an exotic instrument, which alters the components of a traditional financial instrument, resulting in a more complex security.

In the context of perpetual contracts, plain vanilla contract is a linear derivative product in which the payoff is a linear function. For example, the price-movement in the underlying asset of the perpetual contract translates directly into a specific dollar value per contract.

## What is an Inverse Contract?

Inverse is one of an exotic financial instrument that is opposite to plain vanilla. The key difference is that all the profit and loss are settled with the underlying asset or base currency. Therefore in the case of MCS, the BTC/USDT contracts are settled in BTC and the number of contracts that can be placed depends on the current bitcoin price.

### <For Vanilla Contracts>

Current price is 7,672 USDT so if a trader wants to order contracts worth 10 USDT..

7672/10 = 0.001303441084..........

🤯🤯🤯

### <For Inverse Contracts> - WAY SIMPLE

Whether you order 1 contract or 10 contracts, you do not need to enter any decimals which makes it very easy to submit orders.

This allows traders to intuitively understand the market price without having to calculate the index unlike traditional futures contracts.

Below is the calculation of P&L of both Vanilla and Inverse contracts.

Plain Vanilla

$$\text{(Exit Price - Entry Price)}\times\text{Contract Quantity}$$

$$= \text{(0.00006-0.00005)}\times\text{10,000}$$

$$= \text{0.10 BTC}$$

Inverse

$${({\text{1}\over{\text{Entry Price}}} - {\text{1}\over\text{Exit Price}})}\times\text{Contract Quantity}$$

$${({\text{1}\over{\text{5,000}}} - {\text{1}\over\text{6,000}})}\times\text{10,000}$$

$$= \text{0.33 BTC}$$

In this article, we looked into the difference between Inverse and Plain Vanilla financial instruments. This may be a confusing concept however with additional explanations in PnL and Margin related posts, we will look into real life examples to our traders understanding.

MCS will consider traders at the first.

Thank you.