Fastest Way to Determine Futures Leverage

What is the fastest way to see how much of the return is due to leverage rather than effective trading in futures systems?

For example, looking at the trade in this image below

  • Average Sell $24,393

  • Average Buy $24,281

  • Difference = $112

  • 10 Contracts

  • Difference * Contracts = $1,120

  • C2 listed Profit = $5,516

  • C2 Listed Profit is 493% of $1,120

This makes sense since YM has a 5 times multiplier effect. I just wonder if there is a good way to compare different futures strategies that trade futures with different multipliers. My goal would be to see who produced a greater return on an equal money at risk basis.

Indices futures are called emini. They are all standard contracts.
The mini contracts you refer to are for commodities, they are usually 1/2 standard contracts.

Go to trade entry page and put in the symbols you can see their margin requirements.

@Golder Thanks, I see that image Do you know what these three numbers are? “Margin $6,743 / $5,395 / Day: $782” I am assuming some verson of initial and maintenance margin etc?

They are initial and maintenance margin , the last one is daytrading margin.

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Not sure exactly what you are trying to do but you could start by calculating the notional value of the futures contracts you are interested in.

The notional value is the number of units represented by the futures contract multiplied by the value per unit. For example, the futures contract for @YM (the Mini Dow) is based upon the Dow points (units) which is currently at 24,366 pts. x the $5 per pt. multiplier which equals $121,830 market value per contract. Thus the 5 futures contracts you indicate above would have a total market value of $609,150.

Using the initial margin amount also given above, $6,743 per contract, and using the 5 contract example, an investor could control futures contracts worth $609,150 in value for about $33,715. This is leverage of about 18:1, obviously much better than can be attained with stocks or 2x or 3x ETFs.

A 1% upward move in the Dow equals 243 points worth about $1,218 per contract. Times 5 contracts is about $6,090 or, again, about 1% of the total market value of the contracts.

However, since an investor only needs to put up the $33,715 initial margin the investor’s percentage return on actual funds invested is about 18%.

This leverage is the attraction of trading futures but it is also the risk factor in trading futures. A 1% downward move in the Dow, in this example, conversely, creates a loss of 18%.

Using an Excel worksheet you could easily determine total notional contract values and implement other calculations with initial margin etc. to give you the information you are attempting to compare.

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@carzxxz Thanks! What you suggest is probably what I have to do and just do it for each strategy I am interested in.

I wish there was a way for a person to search in the grid for annual return adjusted for money at risk or % of account value at risk. I feel that often futures are used here to create explosive returns, but the majority of the returns are often just a result of high leverage and were only attained because the person was risking 5 times the account value.

Of course, there are good traders in futures out there. I am just cautious of some of the future systems at the moment, and wish there was a simple tool to make checking for account value at risk.

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I share your concerns and as you can see, many C2 futures strategies have high drawdown levels which, in a way, may overstate the risk since relatively small or minor moves in something like an underlying index is magnified by the leverage.

I tend to allot more capital than is required on the C2 strategy side to help mitigate the percentage size of a drawdown on my side of the strategy. This, of course, does not really reduce my risk but it does support my psychology for following a futures strategy which is promising.

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Maybe I can help. I am a trade leader and use the following metric with my followers. This may be what you are looking for.

It’s the concept of the “R” metric or R multiple. This is a risk metric that measures profits in terms of how much risk you take. If you do not use a stop on trades this metric can’t be measured because essentially your risk is unlimited with no stop. R is the measure of profit relative to the initial risk on the trade. Essentially how much leverage is the trader using to achieve his profit.

Trader A made $1200
Trader B made $1200

Were they both successful that day? What if Trader A risked $200 on his initial risk and Trader B risked $800 on his initial risk. Who did better? Trader A achieved 1:6 risk reward ratio. Therefore his R was 6. Trader B achieved 1.5R. The higher the R the better. If Trader A got stopped out without moving his initial stop he would have achieved negative one R. If Trader B moved his initial top to a worse position after the trade was on to a risk of $1600 and still got stopped out he would have achieved -2R. This metric is used to identify the true risk of a position. Clearly the minimum a trader should look to achieve is 1R. In addition, once the trade is on, it is always a bad idea to move stops to a worse position so max loss should always be -1R. Now say the initial risk was $800 with hopes of making $800. The trade moves in favor and to be safe stops are improved. Then the trade gets taken out by a trailing stop for a profit of $600 instead of the intended profit. In this example R is 0.75.

Hope that helps you.

Good day


Charles, you raise an important question.
I am a futures trader but NOT because of the leverage. I do so because:

  1. access in after hours
  2. liquidity - very easy to change exposure both long and short
  3. tax treatment
  4. most of my portfolio can be parked in an FDIC protected account for protection

In my thinking and analyses of risk and return, I do everything based on notional amount. So, for example, the current notional amount for 1 ES contract is about $132,000. To trade this exposure, I would take about $25,000, put it into a futures trading account and park the rest in a safe FDIC account. Then I trade 1 ES contract and analyze risk and return as if I had put the whole $132,000 into the S&P. It’s a synthetic way to create S&P economic exposure for the whole $132,000. So…if my futures position goes down by $13,200, my DD is 10%, not over 50%. If I am up $13,200. my return is 10%, not 50%+.

Now, I realize that many people don’t have $132,000 to do this. But looking at futures trading this way for ALL forms of futures interaction puts everything on a level playing field. I really wish C2 didn’t compute a leverage return for comparison. I think it encourages folks to engage in very risky behavior without knowing it.

So how does a developer add value here in C2 if he just trades the ES? In my experience, he does so by first having an algorithm that captures optimum entry and exit points AND having inherent “risk mitigation” feature built in (I prefer other ways than just stops). This has worked really well for me in the past.