Total notional exposure divided by account equity: the leverage you are actually using, which is usually far below the maximum the broker allows.
Headline leverage counts notional. Effective leverage counts sensitivity, which is what hurts. A hedged pair of positions can show 6:1 notional and behave like 1:1; a portfolio of five correlated momentum names can show 2:1 and behave like 5:1.
The practical estimate is empirical: regress your daily equity change against the index return, or simply compare your worst day to the market's worst day. If the market fell 2% and your account fell 6%, your effective leverage to that factor is about 3, whatever the statements say.
This is why beta-weighted-delta and portfolio-volatility exist. Both are attempts to state one number for "how much do I move when the world moves", which is the only leverage figure worth managing.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.Delta across the range of prices. Delta says how much a call's price moves for a one-point move in the stock. Far below the strike it is near 0 and the option barely reacts; at the strike it is about 0.50; far above it approaches 1 and tracks the stock.
Educational only, not advice. Spotted an error? Post in Site Feedback.