Position Leverage Explained
Our portfolio that we run on the Marketocracy site allows leverage up to 2.0 (or 200 percent depending on how you describe it) of account value. We disclose our leverage on this site to provide you a window to what we are doing. In this morning’s blog we mention that we are 0.91 leveraged in various stocks and stock ETF’s, 0.31 in OIL,GOLD, and COMMODITY ETF’s, and 0.12 in short T-bond ETF’s.
For example if an account had a net asset value of $ 100,000, it today would have $ 91,000 face value in long stocks/ETF’s, $ 31,000 face value in Long Oil, Gold, and Commodity ETF’s and $ 12,000 face value in short T-Bond ETF’s. That works out to total portfolio leverage of 91,000+31,000+12,000, or $ 134,000 in total position face value, or said another way, 1.34 leverage, or said another way 134 percent of account value.
To us leverage is the most important factor in a trade and is a function of risk as we measure it. Market direction (ie. being bullish or bearish) in a contrarian sense is not always obvious, we try to get in and out early in a move. Early in a move we may have low leverage, say .20 to .30 and then move up the scale as we become more confident in the trade. If we see low risk and strong direction we may go as high as 2.00 leverage.
Currently we are evaluating an idea of providing a subscription service using ETF’s that will allow subscribers to view the portfolio and receive signals on an interactive basis.