**What is Effective Leverage?**

Effective leverage is the multiple of the position value compared to the portfolio value of the account, which includes unrealised profit or loss.

This means, the leverage amount shown for an open position will change as the price changes because it represents "effective leverage".

**How is Effective Leverage calculated?**

Kraken Futures operates on the basis of cross margin which uses the entire balance of the trading wallet as collateral for the position. This is in contrast to isolated margin, where the position is independent and only the collateral used to open the position is at risk.

The effective leverage is calculated by dividing the value of open positions by the total available equity of the account. In other words, the effective leverage is the amount of capital used compared to the amount in the futures trading wallet.

You can calculate the effective leverage as follows:

`Effective Leverage = (Position Size * Value of 1 contract) / (Portfolio Value in Base * Mark Price)`

**Portfolio Value**

Portfolio Value in the above calculation takes into account unrealised Profit/Loss of open positions. Portfolio value also includes realised Profit/Loss from the Funding Rate either being credited or debited every four hours when trading perpetual contracts. This changes the trading wallet balance which will also change the effective leverage.

**Understanding why the Effective Leverage changes**

When the price moves in your favor and your position is in profit, the effective leverage will be lower as the portfolio now has a higher value due to unrealised profit and thus a lower effective leverage ratio. The opposite is also true, when the price moves against your position the effective leverage will be higher as there is now less collateral available due to unrealised loss.

**Example of Effective Leverage**

You open a long position of 10,000 contracts of XBTUSD at $9000 USD. You have no other positions open, the current market price is $8000 USD and mark price is $7995. The quantity of XBT in your XBTUSD trading wallet is 0.25 XBT.

`Effective Leverage = (Position Size * Value of 1 contract) / (Portfolio Value in Base * Mark Price)`

- Position size = 10,000 contracts
- Mark price = $7995
- Portfolio value = Margin Acc. Balance + Profit or Loss from Open Positions
- Margin Acc. Bal. = 0.25 XBT
- Profit or Loss = (1/Futures Entry Price - 1/Futures Exit Price)*Position Size = (1/9000 - 1/7995)*10000 = -0.13967 XBT
- Portfolio value = 0.25 + -0.13967 XBT = 0.1103 XBT

Therefore, effective leverage = (10000 * $1 USD) / (0.1103 * 7995) = 11.34x