Here is a simple example. Assume I have $100k invested in plain equities. I want to use $30k on top of that as leverage to invest in US large cap.
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Here is a simple example. Assume I have $100k invested in plain equities. I want to leverage up to 1.3 to invest in US large cap.
1 /MES futures contract has a notional value of 5 * index price. Currently that is $30k. To buy this contract, I am required to set aside $2500 as a good faith deposit for the contract.
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This gives me a notional exposure of $30k in the S&P 500 at the cost of $2500. The $2500 is only the bare minimum, and it is usually advised to keep 3-5x of cash to handle downswings (see [below](#futures-margin-is-different)).
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This gives me a notional exposure of $30k in the S&P 500 at the cost of $2500. The $2500 is only the bare minimum, and it is usually advised to keep 2-5x of cash to handle downswings (see [below](#futures-margin-is-different)). So I set aside $10k as a safe amount of cash for this contract. That means I get a notional exposure of $30k at the cost of $10k.
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That $10k needs to come from somewhere. I could sell $10k of equities. That would give an overall leverage of (100-10+30)/100 = 1.2.
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If I were to only keep the bare minumum of $2500 in cash, that would increase leverage to (100-2.5+30)/100 = 1.275.