The leverage displayed on your position is the effective leverage, not the initial leverage you set. Effective leverage fluctuates because unrealised PnL changes the equity in your position. A loss increases effective leverage; a profit decreases it. Initial leverage and effective leverage are two distinct values.
What is the difference between initial leverage and effective leverage?
Initial leverage and effective leverage are two distinct values. Understanding the difference explains why the number on your position keeps moving.
Initial leverage is the leverage level you set when opening a position. This value stays constant unless you manually change it using the leverage slider. If you set 10x, it remains 10x regardless of market movement.
Effective leverage is the actual leverage at any given moment. It changes based on the unrealised PnL (profit and loss) on your position. Effective leverage reflects how much of the position value your current equity supports.
The formula is: Effective Leverage = Position Value / Position Equity
The platform displays effective leverage, not initial leverage. This is why the number appears to change even though you have not adjusted the slider.
Why does effective leverage fluctuate?
Effective leverage moves because unrealised PnL changes the margin (equity) backing your position.
- Unrealised loss reduces your position margin. Less equity supporting the same position value means higher effective leverage.
- Unrealised profit adds to your position margin. More equity supporting the same position value means lower effective leverage.
Example
- You open a position worth $100 at 10x leverage. Your margin is $10.
- Effective leverage: $100 / $10 = 10x.
- The Mark Price moves against you. You lose $5 in unrealised PnL.
- The position is now worth $95. Your equity drops to $5.
- Effective leverage: $95 / $5 = 19x.
The initial leverage remains 10x. The effective leverage has risen to 19x because the loss reduced your equity. If the position moves in your favour and you gain $5 instead, effective leverage drops to $100 / $15 = roughly 6.7x.
This behaviour is normal. Effective leverage always moves inversely to your unrealised PnL. Monitor it closely because rising effective leverage brings your liquidation price closer to the current market price.