Position Leverage
Starting with leverage, I use two calculations to assist with measuring the degree of leverage I might be carrying, and, I can break that down further by individual position, sector, and overall portfolio.
For example, I want to manage my risk by capping my leverage in any individual position, at, say, 200 percent.
I might, depending on the input offered by the other risk measurements, consider a 200 percent position in gold to be a maximum degree of leverage.
In that case, I simply take the nominal value of one gold futures contract, which at $600 per ounce would be $60,000 ($600 times 100 ounces per contract). Hence, for an account size of $60,000 I would hold a two-contract maximum at any given time when my indicators and macro overview were at their most bullish (or bearish, short two-contract maximum).
For a $1,000,000 account, carrying 200 percent leverage in gold would mean 1,000,000 divided by 60,000, times 2 (200 percent leverage). At $600 per ounce, a 200 percent leveraged position would equal 33 contracts of gold. Likewise, a 100 percent leveraged position, which means $1,000,000 worth of gold held for each $1,000,000 in capital, would equate to 16 contracts of COMEX gold futures, whereas a 50 percent leveraged position for a $1,000,000 account would be 8 contracts.
For a long-term investor then, who wants the minimum margin, not the maximum margin sought by the most aggressive (and nimble) trader/speculator types a 5 percent allocation ...

Get Gold Trading Boot Camp: How to Master the Basics and Become a Successful Commodities Investor now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.