**Trigger Explanation**

The trigger point for overleveraging is determined by the relative risk to the account’s daily drawdown limit. If the accumulated risk exceeds a certain percentage of the initial daily drawdown, it indicates a violation of prudent risk management practices.

**Forex and Major Currency Pairs:**A violation occurs if the total open position generates a profit or loss greater than 25% of the initial daily drawdown within a 10-pip movement.

**Cryptocurrencies:**A violation occurs if, for every $500 movement in price, the total asset position generates a profit or loss greater than 20% of the initial daily drawdown.

**Indices:**A violation occurs if, for every $10 movement in price, the total asset position generates a profit or loss greater than 12.5% of the initial daily drawdown.

**Metals and Commodities:**A violation occurs if, for every 10 pip movement in price, the total asset position generates a profit or loss greater than 12.5% of the initial daily drawdown.

**Simple Formula for Checking Threshold**

Position Size × Price Movement × Pip Value ≤ Threshold Percentage × Initial Daily Drawdown

**Explanation of the Formula**

**Position Size:**The total number of contracts or lots in the trader’s position.

**Price Movement:**The threshold movement in price for the specific asset class being traded.

**Pip Value:**The value of one pip for the specific asset.

**Threshold Percentage:**The threshold percentage for the specific asset class being traded.

**Daily Drawdown:**The initial allowable daily drawdown for the trader’s account.

If the calculated value on the left side of the equation exceeds the threshold determined by the threshold percentage, it indicates a violation of prudent risk management practices.

**Implications and Consequences**

Overleveraging poses significant risks to traders’ capital and the stability of the trading environment. Excessive leverage can lead to rapid and substantial losses, potentially wiping out a trader’s account. At TopTier Trader, overleveraging is strictly prohibited, and violations of this policy may result in severe consequences, including strikes, delayed payouts, reduced/rejected payouts, and ultimately, a ban from the platform.

NB: Overleveraging would occur if your total open position on a single asset surpasses the threshold for that specific asset's asset class.

**Examples of Overleveraging Policy Application**

**Example 1: No Violation**

Asset: EUR/USD

Total Position size: 3 standard lots

Pip value for EUR/USD: $10 (for 1 standard lot)

Price movement: 10 pips (threshold for forex and major currency pairs)

Initial balance: $200,000

Initial daily drawdown limit: $10,000

**Using the formula:**

3 × 10 × $10 ≤ 0.25 × $10,000

$300 ≤ $2,500

Since $300 is less than 25% of the initial daily drawdown limit of $10,000 ($2,500), the total position size does not exceed the threshold. Therefore, it is not a violation of the overleveraging policy.

**Example 2: Violation**

**Asset:**XAU/USD (Gold)**Total Position size:**35 standard lots**Pip value for XAU/USD:**$10 (for 1 standard lot)**Price movement:**10 pips (threshold for metals and commodities)**Initial balance:**$200,000**Initial daily drawdown limit:**$10,000

**Using the formula**:

35 × 10 × $10 ≤ 0.125 × $10,000

$3,500 ≤ $1,250

Since $3,500 is greater than 12.5% of the initial daily drawdown limit of $10,000 ($1,250), the total position size exceeds the threshold. Therefore, it is a violation of the overleveraging policy.

**Example 3: No Violation**

Suppose a trader is trading **US30 (Dow Jones Industrial Average)** with the following details:

Asset:

**US30 (Dow Jones Industrial Average)**Total Position size: 20 standard lots

Pip value for US30: $1 (for 1 standard lot)

Price movement: $10 (threshold for indices)

Initial balance: $200,000

Initial daily drawdown limit: $10,000

**Using the formula:**

Position Size × Price Movement × Pip Value ≤ 0.125 × Initial Daily Drawdown

20 × 10 × $1 ≤ 0.125 × $10,000

$200 ≤ $1,250

Since $200 is less than 12.5% of the initial daily drawdown limit of $10,000 ($1,250), the total position size does not exceed the threshold. Therefore, it is not a violation of the overleveraging policy.

**Example 4: Violation**

Suppose a trader is trading **Bitcoin (BTC/USD)** with the following details:

Asset:

**BTC/USD (Bitcoin)**Position size: 15 standard lots

Pip value for BTC/USD: $1 (for 1 standard lot)

Price movement: $500 (threshold for cryptocurrencies)

Initial balance: $200,000

Initial daily drawdown limit: $10,000

**Using the formula:**

Position Size × Price Movement × Pip Value ≤ 0.2 × Initial Daily Drawdown

15 × 500 × $1 ≤ 0.2 × $10,000

$7,500 ≤ $2,000

Since $7,500 is greater than 20% of the initial daily drawdown limit of $10,000 ($2,000), the total position size exceeds the threshold. Therefore, it is a violation of the overleveraging policy.

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