With different leveraging strategies I can achieve the same leverage in multiple ways. In this case I've just used a margin loan.
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Let's say instead I start with $320k in cash, and no equities. My leverage ratio is 1. I buy 1 /ES S&P 500 future, which requires about $20k cash set aside (margin requirement). There is now $300k leftover. If I do nothing with that cash, my leverage is still 1. If I start withdrawing cash, the leverage goes up, and I can easily match the 1.45 in the first example. Suppose I withdraw $80k in cash:
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Let's say instead I start with $320k in cash, and no equities. My leverage ratio is 1. I buy 1 /ES S&P 500 future, which has about $320k in notional value and requires about $20k cash set aside (margin requirement). As it stands my leverage ratio is:
There is now $300k leftover in cash. If I start withdrawing cash, the leverage goes up, and I can easily match the 1.45 in the first example. Suppose I withdraw $80k in cash:
I've essentially done the same thing as a margin loan, albeit for a bit less cash ($80k vs $100k). With the margin loan, there is the daily interest cost. With the futures "loan", the interest is baked in because the futures quote will be higher than the current index.
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I've essentially done the same thing as a margin loan, albeit for a smaller cash loan ($80k vs $100k). With the margin loan, there is the daily interest cost. With the futures "loan", the interest is baked in because the futures quote will be higher than the current index.