How Does the Concept of “Effective Leverage” Differ from Stated Leverage?
Stated leverage is the maximum leverage an exchange allows. Effective leverage is the actual leverage being used, calculated as the notional value of the position divided by the actual margin (equity) in the account.
Effective leverage changes constantly with price fluctuations and P&L, whereas stated leverage is a fixed limit. Traders should focus on effective leverage for true risk assessment.
