Leverage
Last updated
Last updated
Leverage refers to a trader's ability to increase their exposure to the market by controlling a larger position than the value of their initial margin deposit.
Mathematically, leverage is expressed as:
Where total position size is the full notional value of the position that the trader is controlling, and initial margin is the amount of collateral the trader needed to post to open the position.
For example, if a trader opens a position worth $100,000 using an initial margin of $10,000, they are using 10x leverage and their market exposure is 10 times their initial capital.
On Variational, there is currently leverage of up to 5x on all markets. However, because a trader's entire account balance is used as margin for all open positions, traders are only practically trading at 5x leverage if all available margin is being used.
For example, if a trader has a $10,000 account balance and opens a position worth $25,000 that requires initial margin of $5,000, the effective leverage on the overall account is 2.5x (because the remaining $5,000 in capital is still used as margin to maintain the position, even when not required as initial margin to open the position). If the trader opened another $25,000 position with their remaining $5,000 in available margin, their account''s effective leverage would reach 5x.