MIH8
- ago
So far I have traded without leverage or margin. Please excuse my clumsy question. What do I have to consider in order to correctly take leverage into account in the backtest?
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MIH8
- ago
#1
Here a more concrete questions on the topic.

How do i need to utilize the "Margin Factor" in the strategy settings. Is it that simple, that when i have a leverage of 2:1, that i need to configure the factor with "2,00"?

Do different brokers treat leverage in different ways?

My first contact with brokers and stocks was with a social broker called Etoro.
I left pretty soon and since then i use Interactive Brokers. Currently i only have a cash account at IB.

What I remember from Etoro is that leverage is treated like an accelerated price movement. What I mean is that if the real price moves by 0.2%, a leveraged position realized a 1% change at a ratio of 5:1 for example.

So, i need to sort out how things work in general first. Knowing this, i would like to know how to handle it in a WL strategy. For example, which settings do exists in that context, what kind of change do i need to program in a position sizer? Do i need to treat the euquity differntly?

Any help is welcome. Thank you.
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Glitch8
 ( 11.82% )
- ago
#2
WL handles it by increasing the amount of equity you have available. So if the starting equity is $100,000 and you use 2:1 margin then your simulation would be able to enter $200,000 worth of positions.
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MIH8
- ago
#3
Thank you very much for your feedback.

Can you explain what the difference is between a 100K account with a margin of 2:1 and a 200K account with a margin of 1:1? (Sorry if this is a dumb follow up question). Does the backtest treat this differently somehow?
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Glitch8
 ( 11.82% )
- ago
#4
The difference would come in the amount of margin interest paid, and certain metrics like Exposure.
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