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# 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<sub>max</sub>: Maximum leverage available
* P<sub>value</sub>​: 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**.