Recently, there's a question worth discussing: when trying to amplify returns through leverage, how big can the difference be between different leverage strategies?

Today, let's look at two real cases. Suppose you have two trading plans in front of you, and you can borrow at an annualized financing cost of 4%. The question is: should you leverage? How much is reasonable?

**Plan A: High Win Rate but Moderate Returns**

This strategy has a win rate of up to 80%, earning an annualized 15% each time it wins, and losing 5% when it loses. Sounds stable, right?

But stability depends on how you calculate it. Without leverage, the expected return = 0.8×15% + 0.2×(-5%) = 12% - 1% = 11%. After deducting the financing cost of 4%, the actual annualized return is 7%. In this case, leveraging becomes attractive.

Using the Kelly Criterion to calculate the optimal leverage multiple: f = ((bp - q)) / b, where b is the odds, p is the win rate, and q is the loss rate. Plugging in: f = (0.05×0.8 - 0.2) / 0.05 ≈ 1.4. This means the optimal leverage is about 2.4 times—using your own principal plus 1.4 times financed capital.

After applying this multiple, how high can the expected return soar? Rough calculations suggest around 26%. Of course, this is the theoretical optimum. In actual trading, considering market volatility, slippage, and other factors, a conservative leverage of 1.5~2 times is also reasonable.

**Plan B: Low Win Rate but High Returns**

This strategy earns 100% annualized when it wins, but with only a 30% win rate, and loses 30% when it loses. It seems like one big win can offset multiple small losses.

Expected value = 0.3×100% + 0.7×(-30%) = 30% - 21% = 9%. Looks decent on the surface, and after deducting financing costs, about 5%. But the key point is—the result from the Kelly formula is negative.

Calculating: f = ((0.3×3.33 - 0.7)) / 3.33 = (1 - 0.7) / 3.33 ≈ 0.09. What does this mean? According to the strict Kelly standard, this strategy shouldn't leverage at all, and might even require reducing position size.

Why? Because although the wins are big, the probability of losing is high, and losses are also large. In the long run, leverage amplifies not just gains but also the risk of liquidation. Many traders have been wiped out by strategies with "low probability, high return."

**Practical Insights**

The same "leverage decision" can have completely opposite answers depending on the strategy. Strategy A can be leveraged up to 2.4 times, while Strategy B shouldn't be leveraged at all.

What's the difference? It's the configuration of win rate and return-to-risk ratio. High win rate with low returns makes leverage attractive; low win rate with high returns is a trap. The Kelly formula helps you find the optimal multiple, essentially balancing risk and reward to avoid bankruptcy.

So next time you consider "should I leverage," don't just look at the percentage numbers on your account, but also analyze the nature of your strategy itself.