What do you mean by Maximum Leverage Ratio ?
Maximum Leverage Ratio refers to the maximized level of financial leverage that an individual or a financial institution can utilise when doing trading or investing activities. Leverage is the use of borrowed funds to increase the size of a trading position beyond what would be possible with one's own capital alone. The maximum leverage ratio is often expressed as a numerical value or a percentage. Leverage can amplify both gains and losses. While it provides the opportunity for increased profits, it also increases the risk of significant losses. Regulatory authorities, such as financial regulators or central banks, often set maximum leverage ratios to ensure financial stability, protect investors, and mitigate the risk of excessive market volatility.
How to Calculate Maximum Leverage Ratio?
Maximum Leverage Ratio calculator uses Maximum Leverage Ratio = 1/Initial Margin Requirement to calculate the Maximum Leverage Ratio, Maximum Leverage Ratio is a measure of proportionality between risk and borrowing. It calculates financial leverage if the trader’s equity position is equal to the initial margin requirement. Maximum Leverage Ratio is denoted by MLR symbol.
How to calculate Maximum Leverage Ratio using this online calculator? To use this online calculator for Maximum Leverage Ratio, enter Initial Margin Requirement (IMR) and hit the calculate button. Here is how the Maximum Leverage Ratio calculation can be explained with given input values -> 1.25 = 1/0.8.