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What does futures leverage mean and how is futures leverage calculated?

2022-01-25

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Friends who have done futures should know that futures are leveraged, and the leverage effect in futures is the original mechanism of futures trading, that is, the margin rule. While the "leverage effect" magnifies the amount investors can trade, it also multiplies the risks borne by investors. This article will introduce to you what futures leverage means and how to calculate futures leverage.

What does futures leverage mean?

Futures leverage is the margin system. Simply speaking, the margin has a proportion. For 10% margin, it is 10 times leverage. Corresponding to a 2% fluctuation in the futures contract price, the profit and loss reflected in the margin will be magnified 10 times, or 20%, which is the benefit and risk of adding leverage. It should be noted that because leverage, capital and income are magnified, the risks are also magnified accordingly, please invest with caution.

The margin of futures trading is divided into exchange margin and futures company margin. If the total margin ratio is 10, it means that the leverage of this product is 10 times, the total ratio is less than 10%, the corresponding product leverage is greater than 10 times, and the total ratio is higher than 10%, indicating that the corresponding product leverage is less than 10 times. Therefore, investors must pay attention to the risks involved in futures trading.

How to calculate futures leverage

The leverage of an option is the reciprocal of the margin. For example, if the margin is 5%, then the leverage of the futures is 20 times. Leverage has the effect of amplifying profit and loss. The actual profit and loss ratio of an investor's position is equal to the percentage of market fluctuation multiplied by leverage. Therefore, the risk of futures investment is very high.

Leveraged trading is also known as virtual trading and margin trading. That is, investors use their own funds as a guarantee to amplify the financing provided by banks or brokers to conduct foreign exchange transactions, that is, to amplify investors' trading funds. The proportion of financing is generally determined by banks or brokers. The larger the proportion of financing, the less funds customers need to pay.

Generally, the leverage ratio of domestic futures exchanges is 5% to 8%, that is, 20 to 12.5 times. When the futures company opens an account, it will add 2 to 3 points on this basis to prevent and control risks.

Suppose a trader has a fund of 50,000 yuan for stock or spot trading, and the risk to the trader is only brought about by stocks or goods worth 50,000 yuan. Generally, the leverage ratio of domestic futures exchanges is 5% to 8%, that is, 20 to 12.5 times. When the futures company opens an account, it is divided into risk prevention and control, and then slightly adds 2 to 3 points on this basis.

Regarding the issue of futures leverage, this article introduces what futures leverage means and how to calculate futures leverage. It is relatively simple to understand futures leverage. Simply put, this leverage can not only improve investors' returns, but also amplify investors' risks. Therefore, investors must really understand and proficiently operate futures leverage, otherwise it will be difficult to make profits in futures investment.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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What does futures leverage mean and how is futures leverage calculated?

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