Leverage trading creates market exposure that is larger than the capital supporting a position. In crypto derivatives, collateral serves as a financial buffer while gains and losses depend on the position’s notional size. Leverage amplifies losses as well as gains.
A simple illustration
Suppose a position has $2,000 of exposure supported by $1,000 of collateral. A 5% adverse move would produce approximately a $100 loss, or 10% of that collateral, before fees and funding. This simplified example illustrates sensitivity to loss; it is not a recommended position or leverage level.
Margin is not the maximum possible price move
A venue requires a minimum amount of equity to keep a position open. Liquidation can occur when the account falls below that maintenance requirement, before all supporting collateral has necessarily been exhausted. The exact outcome depends on the contract and account rules.
Leverage should therefore not be read as a measure of strategy quality. A larger position can increase a return figure without improving the underlying signal. Meaningful evaluation separates the strategy’s behaviour from the amount of financial exposure used to express it.
Market gaps, poor liquidity and trading costs can make actual losses differ from a simplified calculation.
AlphaNet’s two risk ratios
The 3× deployment limit uses each strategy allocation multiplied by its Max exposure percentage, plus manual net-position notional, divided by equity. The separate 6× auto-stop limit uses actual live strategy net-position notional plus manual net-position notional, divided by equity. Positions are netted within each asset separately for strategy and manual groups, then the absolute net amounts are added across assets; strategy and manual positions never offset each other. At the auto-stop limit, strategies are stopped and their positions closed; manual positions remain open for the user to manage. The deployment ratio measures weighted allocation commitments; the auto-stop ratio measures live positions. Both differ from an exchange position-margin leverage setting. Additional available allocation is strategy-specific: take 3 × equity minus existing deployment exposure commitments and manual net-position notional, no lower than zero, then divide by the selected strategy’s Max exposure percentage.