On Delta Exchange, we distinguish between order leverage and position leverage.  In this post I cover the motivation behind doing so and the benefits that it brings to a trader. I am going to demonstrate this using an example.
What is Position Leverage?
When you place an order and choose a leverage, you essentially decide how much capital you want to keep as margin. Let’s say that you place an order to <a href="http://prod-wp.delta.exchange/futures-guide-bitcoin/">buy Bitcoin futures</a> with 10x leverage. If the position is for 1000$ notional, you’ll have to keep 100$ worth BTC as margin and this would mean that your liquidation price is roughly 10% away from your entry price. For this article, let’s assume that you prefer that your liquidation price is always 10% away from current price.
Now suppose BTC moves higher and your long position is profitable. Your position will have accrued some unrealised profits. Hence the money that you currently have claims to are: the margin that you had kept and unrealised profits. These unrealised profits would have reduced the effective leverage and the liquidation price of your position would be farther out from the current mark price. This effective leverage is what we call “Position Leverage”.
Let’s consider 2 scenarios now:
Scenario#1: Let’s say that because of your unrealised profits your current Position Leverage has become 5 x. Assume that you want to increase your position size as market moves higher. You also want that if your open orders are filled your liquidation price is 10% away from the mark price but if the market retraces instead, then your unrealised profits can support your position.
In a way you want to use your unrealised profits to margin for extra quantity if the open orders are filled but if they are not filled then you want to use unrealised profits to support your current position. You can do this by adding new orders at an order-leverage which is higher than 10x (your desired position leverage). Since this order is at higher leverage it will need less margin.
Your current position leverage is 5 x. Say you wish to double the size of your open position, you should put new open orders at 15 x leverage, which need less margin. When your orders are executed your new position leverage will come back to ~10x. (I am assuming execution price of new orders is close to current price)
<blockquote>Having the flexibility to have order leverage and position leverage as different entities helps a trader reduce margin requirement for open orders w/o increasing the risk of the position. So you can gradually build a position w/o blocking too much money in margin.</blockquote>
Other exchanges also provide the option of changing leverage of an open position but they force traders to have same leverage for open positions and open orders. We see this as a drawback because if you want to increase your position in size, your new orders will be at same leverage as your position. If you want to add new orders at higher leverage, you’d have to move your entire position at higher leverage or higher risk.
Scenario #2: If you do not want to add to your position size, you can simply withdraw margin form your existing position and increase the position leverage back to the desired level. This money will get credited to your available balance immediately and you can use it to trade in other contracts.
I hope this posts clarifies the difference between order leverage and position leverage and how to use them for efficient capital management.
How do you like this feature? Do let me know in comments below.

On Delta Exchange, we distinguish between order leverage and position leverage.  In this post I cover the motivation behind doing so and the benefits that it brings to a trader. I

Order Leverage & Position Leverage - Efficient margin utilisation

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