Leverage Adjusted Returns

Leverage adjusted returns measure the performance of an investment while accounting for the amount of debt or margin used to generate those returns. Since leverage amplifies both gains and losses, a raw return figure can be misleading without context.

In crypto trading, where high leverage is common, this metric is vital for comparing the efficiency of different trading strategies. It helps traders understand if they are achieving returns through genuine alpha generation or simply through the dangerous application of leverage.

Adjusting for leverage allows for a more accurate assessment of risk-adjusted performance and helps prevent over-leveraged positions that are susceptible to liquidation during market volatility.