I have seen that contest accounts are granted 3X leverage. How does this compare to Reg T that limits initial margin to 2X leverage? Is the same 3X leverage allowed in non-contest accounts trading through IB? Just curious to understand the risk appetite of Q contest and IB account holders. What are people's thoughts on leveraging portfolios? Is leverage a good thing or bad thing? Just to be clear, shorting an amount just under your equity (because of the ~102% collateral requirements for borrows) is not economic leverage, so a fully invested account with 98% equities, 98% borrowed shorts and 102% cash has no economic leverage. From what I understand, Q accounts can have 294% equities, 294% borrowed shorts and 306% cash for 3X leverage. Is my understanding faulty? Should average leverage ratio be used as a portfolio characteristic for the leaderboard/contest/fund inclusion criteria?
I'm not very sophisticated in this area, but my experience has been that with increased leverage, the volatility gets amplified, and there is no net gain with respect to the contest. I've also wondered why Q allows it at all. It would seem that since they are aiming to build a fund of algos, they would sort out how to leverage best across the various algos of the fund "managers" as they would be called. But maybe internal to certain algos the leverage needs to be set more strategically than just weighting longs and shorts by the same relative factor.
Note that Q gauges leverage by context.account.leverage, which is described on the help page:
context.account.leverage (IB: GrossLeverage)
(Float) Gross position value divided by net liquidation. Backtest value: (long value + abs(short_value)) / context.portfolio.portfolio_value
Per the contest rules:
Your algorithm must keep its leverage under three. If your leverage exceeds three, in backtest or paper trading, your entry will be disqualified. You can track your leverage using context.account.leverage.
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