When trading on Isolated Margin, you may notice that your leverage levels appear to fluctuate. This article aims to clarify why this occurs and how it relates to your position's effective leverage.
Fixed Position Leverage vs. Effective Leverage:
It's important to differentiate between fixed position leverage and effective leverage:
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Fixed Position Leverage:
- Fixed position leverage refers to the leverage level you initially set when opening a position.
- This value remains constant unless you manually change it yourself.
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Effective Leverage:
- Effective leverage represents the actual leverage at any given moment, which can vary based on changes in your position's margin caused by unrealised PNL.
Fluctuations in Effective Leverage:
The fluctuations in effective leverage are primarily influenced by your unrealised PNL (Profit and Loss) and its impact on your position margin.
Your unrealised PNL reflects the profit or loss of your open position that has not been realised through closing the trade. When you have an unrealised loss, it deducts from your position margin, depleting it. In this case, your effective leverage will rise. Conversely, an unrealised profit adds to your position margin, leading to a decrease in effective leverage.