James

James Glyde

CEO
James is the CEO of PipFarm. With over a decade of experience in the online trading industry, he is one of the most experienced CEO's of trader funding platforms.

Dynamic leverage introduction

PipFarm’s approach to risk management is unique and effective. We use dynamic leverage to gradually increase margin requirements (i.e. reduce leverage) as your exposure to a specific symbol grows. This strategy addresses our concentration risk, where many traders ’ positions are heavily weighted towards a handful of products, such as XAU/USD, US30, or BTC/USD.

Some of our competitors offer much lower leverage on some trading symbols as a one-size-fits-all solution. The drawback of this approach is it may restrict your ability to trade other instruments because of high margin consumption. We like to find more intelligent and fairer solutions.

Please read this guide carefully to understand the benefits of this feature and how you can manage your margin efficiently. The rules vary according to account size and symbol.

Example #1

Dynamic leverage tiers are based on your net exposure of a symbol converted to USD. The table below shows our dynamic leverage tiers for trading precious metals with a $10,000 account.

TierUSD exposureLeverage (margin)
Tier #1⩽ 50,0001:25 (4%)
Tier #2⩽ 100,0001:10 (10%)
Tier #3⩽ 200,0001:5 (20%)
Tier #4> 200,0001:2 (50%)

Suppose the price of XAU/USD is $2,000, and you open a 0.25 lot position; your exposure is $50,000, which falls within tier 1. Therefore, the margin is calculated using 1:25 leverage, and the required margin is $2,000.

Suppose you open a 0.5 lot position of XAU/USD at $2,000 per ounce; your exposure is $100,000, which falls in tiers 1 and 2. The first $50,000 of exposure will use 1:25 leverage, and the remaining $50,000 will use 1:10 leverage, meaning the margin required is $7,000. Another way of looking at it is leverage for this position becomes 1:14.

Example #2

This example shows how leverage is calculated when trading multiple symbols, assuming the same conditions as the previous example.

Suppose the EUR/USD exchange rate is 1.05, and you open a 0.2 lot position of XAU/EUR for 1,900 EUR; the notional value is 39,900 USD, which falls in the first tier. With 1:25 leverage, the margin required is 1,596 USD. Now, suppose you open a 0.25 lot position of XAU/USD; the notional value is $50,000. Since this position also fits in the first tier, 1:25 leverage is used, and the margin required is $2,000.

Despite both symbols having the same underlying base asset, both positions fall in the first margin tier, highlighting how margin is calculated per symbol, not per asset. It also demonstrates how tiers are calculated in USD notional value, not lots or units.

Example #3

Dynamic leverage is calculated based on the net exposure. For example, if you have a 0.1 lot XAU/USD long position and a 0.5 XAU/USD short position, your exposure is 10,000 USD (20,000 – 10,000), not 30,000. Therefore, opening a position in the opposite direction decreases exposure for the purpose of dynamic leverage tier calculation.

If you have positions in both directions, closing a short position will increase your long exposure, or vice versa, and can take you into a higher leverage tier.

Dynamic leverage vs standard leverage comparison

To best understand the benefits of dynamic leverage, we should compare it with one of our peers from the funded trader industry. Flagship prop firm FTMO provides 1:9 leverage on precious metals in their swing account, comparable to all PipFarm accounts.

With a $10,000 FTMO swing account, your maximum exposure to gold is 0.45 lots.
With a $10,000 PipFarm account, your maximum exposure to gold is 0.57 lots, 27% more than with FTMO.

If you open 0.3 lots of gold with an FTMO swing account, the position will use $6,666.66 of margin.
If you open 0.3 lots of gold with a PipFarm account, the position will use just $3,000 of margin, which is 55% less.

Margin recalculation

cTrader will never take more margin than is necessary. When you open or close positions, your exposure changes and margin requirements are recalculated.

For example, if you open these two positions:

DirectionSymbolVolumeExposureTierLeverageMargin Used
#1BUYXAU/USD2550,000Tier #11:25$2,000
#2BUYXAU/USD2550,000Tier #21:10$5,000

If you then close position 1, there is no need to keep $5,000 of margin as your exposure is reduced. Therefore, the margin used for position 2 is recalculated as $2,000.

Dynamic leverage in cTrader

Dynamic leverage is clearly shown in cTrader.

You don’t need to worry about calculating dynamic leverage in your head, on paper, or in a spreadsheet. cTrader is an incredibly trader-friendly platform that automatically calculates margin requirements as you enter your order size. Dynamic leverage tiers are clearly shown for every trading account.

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