Leverage

Also seen as: gearing, multiplier, margin.

How much exposure does a leverage multiplier create?

Multiply the strategy's capital by the multiplier; anything above the capital is borrowed.

where $L$ is the leverage multiplier, $C$ is the strategy's capital, $E$ is the resulting market exposure, and $B$ is the borrowed amount that has to be financed. Below 1.00× nothing is borrowed and the unused share of capital — $(1 - L) \times C$ — simply stays in cash: a 0.70× profile is 70% invested and 30% cash, with the same cash drag that any idle balance carries.

What are the leverage presets?

Four presets cover the range, with a slider for anything in between:

What does leverage cost?

Above 1.00×, the borrowed part is financed for as long as it is held. The rate charged is a short-term reference interest rate plus the borrowing rate markup, the spread described in the app as "Spread added above the broker rate when borrowing capital." — see interest-rate markups for both markups and their defaults.

That cost is charged only when the Costs & interests assumption is on. With costs off, a leveraged run shows the magnified gains and losses but none of the financing that produced them, which flatters leverage specifically. It lands on the "Interest paid" line of the results — see interest received and paid.

What does leverage do to gains and losses?

It multiplies both, by the same factor and in the same direction. A market move of $r$ on the exposure is worth $L \times C \times r$ to the strategy, so at 1.50× a 10% move is worth 15% of capital whether the market went up or down. There is no asymmetry: the multiplier that magnifies a good year magnifies a bad one identically, and a leveraged strategy can fall further and faster than the same strategy at 1.00×.

The financing cost sits on top of that and does not care about direction. It is subtracted after a gain and added to a loss, so a leveraged run needs the magnified gain to clear the financing before it is ahead of the unleveraged version.

Defaults in Fincanva

• The default is 1.00× (No leverage), and the range is 0.00× to 2.00× — 2.00× is the most exposure a profile can hold.
• Leverage belongs to an allocation profile, so a Risk-Off profile can carry a different multiplier from the Risk-On one — including Cash only — see Risk conditions.
• The profile summary line prints the multiplier next to the allocation method, as in "· 1.50×".
• At Cash only (0.00×) no positions are opened at all; the run tracks an uninvested balance.
• Leverage is the strategy-level exposure control. How much of a Combined's capital reaches its strategies in the first place is the invested portion, a separate control at the Combined level.

Worked example

A strategy with 10,000 of capital runs a year at 1.50× (Moderate). Its exposure is 1.5 × 10,000 = 15,000, of which 5,000 is borrowed. Suppose the reference rate is 4% and the borrowing markup is the default 1.5%, so the borrowed money costs 5.5% for the year: 5,000 × 5.5% = 275.

The same strategy at 1.00× would have made +1,000 or lost 1,000, with no financing at all. Leverage turned a 10-point market move into a 12.25-point gain or a 17.75-point loss — and the 275 was paid in both cases, which is why the downside is magnified by slightly more than the upside.

Leverage magnifies losses exactly as it magnifies gains. Fincanva does not recommend a leverage level or tell you whether to use leverage at all — see Is this financial advice?.