Maintain Safe Leverage
“Leverage ratio” is simply the dollar amount of your positions divided by
the account equity. For example, if you were trading T-bond futures, one
contract at a price of 125 is equal to $125,000 (125 * $1,000 per point). If
you had $50,000 in your account, then your leverage ratio would be 2.5
($125,000/$50,000). For every dollar you have, you are controlling 2.5
dollars. I recommend keeping your leverage ratio at 6 or lower.
–Manuel Ochoa, from the TradingMarkets.com Guide to Conquering the Trading
Markets (1999, M. Gordon Publishing, Malibu, Calif.).