What Is “Effective Leverage” and How Is It Calculated?

Effective leverage is the true, real-time leverage a trader is using, calculated by dividing the total notional value of the open position by the current equity (margin balance) in the account. This differs from the exchange's maximum offered leverage.

If a trader adds margin to a position, their effective leverage decreases, making the position safer.

How Does the Concept of “Effective Leverage” Differ from Stated Leverage?
What Is ‘Effective Leverage’?
Is the Funding Rate Calculated Based on the Margin or the Notional Value?
How Is the Margin Level Calculated?
What Is the Formula for Calculating Account Equity in a Margin Account?
How Does the ‘Effective Leverage’ of an Options Portfolio Differ from the Account Leverage?
How Does ‘Effective Leverage’ Differ from the Stated Leverage Limit?
How Does a Trader Calculate the Effective Leverage When Using Cross Margin?

Glossar