How Does ‘Effective Leverage’ Differ from the Stated Leverage Limit?
The stated leverage limit is the maximum allowed by the exchange. Effective leverage, however, is the actual leverage a trader is using based on their total position value divided by the total equity in their account.
A trader might use 5x stated leverage but have a much lower effective leverage if they have significant excess margin.
Glossar
Lower Effective Leverage
Metric ⎊ Lower Effective Leverage is a quantitative metric representing a reduced ratio of a derivatives position's notional value to the collateral or margin capital actually employed by the trader.
Stated Leverage
Definition ⎊ Stated Leverage is the maximum leverage ratio advertised or offered by a derivatives exchange, representing the theoretical multiplier of a trader's capital that can be used to control a notional position size.
Effective Leverage
Amplification ⎊ The concept of effective leverage, particularly within cryptocurrency derivatives, options trading, and broader financial derivatives, represents the realized degree of market exposure beyond the nominal notional value of a position.
Leverage
Amplification ⎊ Leverage, within cryptocurrency, options, and derivatives, represents the utilization of borrowed capital to increase the potential return of an investment, fundamentally altering risk-reward profiles.
Stated Leverage Limit
Constraint ⎊ Stated Leverage Limit represents a predetermined maximum ratio of capital at risk to total capital employed in derivative positions, fundamentally governing exposure within cryptocurrency, options, and broader financial markets.