What's the difference between:
12.Margin Target
13.Leverage Target
14.Percentage of equity
To me Margin Target, Leverage Target, or Percentage of equity are the same.
If for ES my margin target is $1,000, then that corresponds with a certain leverage.
If I take that specific leverage, then it will correspond with a margin target of $1,000.
And a margin target of $1,000 corresponds with a certain percentage of equity.
12.Margin Target Margin
target position sizing sets the size of each position so that the chosen percentage of account equity will be allocated to margin. For example, if you choose a margin target of 30%, then 30% of the account equity will be allocated to margin. For futures trading, the trading margin is specified on a per-contract basis. The margin requirement for trading one contract of the E-mini S&P futures might be $4,000, for example. For an account equity value of $30,000, a 30% margin target would mean that 0.3 x 30,000 or $9,000 would be allocated to margin. With a margin requirement of $4,000, the number of contracts would be 9000/4000 or 2 contracts (rounded down from 2.25). In other words, a position size of two contracts requires a margin amount ($8,000) that is as close to 30% of equity as possible without exceeding that target. For stock trading, the margin requirement is calculated as a percentage of the purchase price of the position. If the margin requirement is 100% (no leverage), you need to pay the full amount of the trade. For example, a stock trade that enters at a price of $23 would require $23 per share. However, a typical retail margin account in the US can be margined up to 50%, 48 which mean that the margin requirement for a $23 stock would be only $11.5 per share. If the margin target is, say, 40%, and the account equity is $25,000, then $10,000 should be allocated to margin (i.e., 0.4 x 25000). For a $23 stock and a margin requirement of 50%, you would trade 10000/11.5 or 869 shares. In other words, 869 shares would require margin of about $10,000, which is 40% of the account equity of $25,000.
13.Leverage Target
The leverage target position sizing method sets the position size so that the leverage of the resulting position matches the selected target. Leverage is defined as the ratio of the value of the position to the account equity. For example, if 1000 shares of a $30 stock are purchased with a $25,000 account, the leverage would be $30,000/$25,000 or 1.2. Leverages greater than 1.0 imply margin percentages less than 100%. A margin percentage of 50%, for example, is equivalent to a leverage of 2 (“2 to 1” or “2:1”).
14.Percent of Equity
This method is intended primarily for stocks. The number of shares is chosen so that the value of the position is equal to the selected percentage of account equity. For example, if the percent of equity is 40%, the position size will have a value equal to 40% of the account equity. If the account equity is $30,000, the position would have a value of 0.4 x 30000 or $12,000. If the share price is $25, the position size would be 12000/25 or 480 shares. In other words, a position size of 480 shares at $25 per share has a value of $12,000, which is 40% of the equity value of $30,000. As with the leverage target method, this method requires the entry price and, for futures, the point value.
