Leverage and Position Limit

Overview

Risk limits are essential risk management tools designed to prevent excessive exposure from individual traders, particularly in high-volatility markets. Without such controls, a trader holding a large position with high leverage could create significant systemic risk and incur large losses.

To mitigate this, the platform utilizes a dynamic leverage model that adjusts according to the size of the position.

Dynamic Leverage Model

The system dynamically adjusts a trader’s maximum allowable leverage based on their open position size.

Key Rules:

• The larger the position size, the lower the maximum leverage that can be applied.

• Conversely, the higher the leverage selected, the smaller the allowable position size.

Mechanism Summary

Let:

• L_max: Maximum leverage available

• P_value​: Value of the trader’s open position

Then:

$$L_{\text{max}} = f(P_{\text{value}}) \quad \text{where } f \text{ is a decreasing function}$$

Likewise:

$$P_{\text{max}} = g(L_{\text{selected}}) \quad \text{where } g \text{ is a decreasing function}$$

Purpose and Benefits

• Limit exposure of large positions with high leverage

• Reduces systemic risk in volatile market conditions

• Encourages responsible trading behavior

By scaling leverage with position size, the platform ensures a balance between flexibility and risk control.