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:
Lmax: Maximum leverage available
Pvalue: Value of the trader’s open position
Then:
Likewise:
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.
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