Leverage and position limit
Risk limits are a risk management mechanism used to limit a trader's position risk. In a volatile trading environment, a single trader holding a large position with high leverage can result in significant losses. The system uses the concept of dynamic leverage, i.e. the maximum leverage available for trading will vary depending on the value of the position held by the trader: the greater the value of the position held, the lower the maximum leverage available. At the same time, the larger the leverage selected, the smaller the open position.
For example, GMYD/sCNH risk limit tier can be:
| Tier | Position Notional Value (sCNH) | Max Leverage | Initial Margin Rate | Maintenance Margin Rate |
|---|---|---|---|---|
| 1 | 0 - 30,000 | 100× | 1.00% | 0.04% |
| 2 | 30,001 - 80,000 | 75× | 1.33% | 0.04% |
| 3 | 80,001 - 300,000 | 50× | 2.00% | 0.04% |
| 4 | 300,001 - 1,200,000 | 25× | 4.00% | 0.04% |
| 5 | 1,200,001 - 70,000,000 | 20× | 5.00% | 0.04% |
| 6 | 70,000,001 - 100,000,000 | 10× | 10.00% | 0.04% |
| 7 | 100,000,001 - 230,000,000 | 5× | 20.00% | 0.04% |
Note: Initial Margin Rate = 1 / Max Leverage
Example
If a trader wishes to open a position with a notional value of 50,000 sCNH:
- The position falls in Tier 2 (30,001 - 80,000 sCNH)
- Maximum available leverage: 75×
- Minimum initial margin required: 50,000 × 1.33% = 666.67 sCNH
If the same trader selects 100× leverage, the maximum position notional value is limited to 30,000 sCNH (Tier 1 limit).