Leverage across strategies

Why leader leverage is not inherited

A leader running 20x on a small fraction of their total net worth is taking a very different risk than a follower running 20x on their entire allocated capital. The position looks identical and the consequence is not.

Independent capping also protects the basket: one leader's aggressive sizing cannot propagate a liquidation into the rest of the book, because their sub-account carries its own margin and its own cap.

• Caps are applied per sub-account, alongside per-leader notional ceilings.
• Higher leverage shortens the distance to liquidation, not the expected return.
• Funding cost scales with notional, so leverage raises carry costs too.
• A cap can cause tracking divergence — that is an accepted trade.

How the right cap differs by archetype

Slow directional strategies tolerate more leverage per unit of expected move than mean-reversion strategies, whose bad scenario is a sustained move against every open position simultaneously. Funding strategies are notional-hungry by nature and need the tightest liquidation buffer relative to their thin per-interval return.

The practical result is that two leaders with the same score can carry different effective exposure, because their archetypes have different failure geometries.

The honest limitation

A cap reduces the probability of liquidation; it does not eliminate it. Gap moves, funding spikes and auto-deleveraging can all produce losses that no sizing rule prevents.

Past performance is not indicative of future results. Perpetual futures are leveraged instruments and carry a substantial risk of loss, including the loss of your entire position.