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Leverage is not a death sentence: The mathematical rules of position management

There is a common saying: leverage is the grave. However, the real risk is not in the leverage itself, but in undisciplined positions. Using leverage of up to one hundred times with only 1% of capital carries the same level of risk as a fully-backed position — this is a fundamental rule in risk hedging in financial engineering.

The basic formula for position management:

Maximum position = (Capital × Risk factor) ÷ (Stop-loss range × Leverage multiplier)

With a capital of 100,000 and a stop-loss ratio of 1%, the maximum position under leverage of up to 20 times is 1,000 yuan. This is a simplified version of the Kelly formula in practice.