Setting Leverage in the Framework by Alessio Magri

Alessio Magri

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Hello Everyone.

Is there an example on how to set the Leverage within the Framework?

I've tried to set it within the AlphaModel, but nothing changes if I set different leveages. Maybe I have to modify the Portfolio contstruction or the Execution Model to make the changes in Leverage effective? Or Is something that can be passed through the insights?

Best Regards!

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Alessio Magri

Accepted Answer

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Alessio Magri

1.2k ,

Hello Everyone, I found a viable answer in modifying the Portfolio construction model.

from decimal import Decimal



class EqualLeveragePortfolioConstructionModel(EqualWeightingPortfolioConstructionModel):



    def __init__(self, rebalance = Resolution.Daily, leverage = 1):

        super().__init__(rebalance)

        self.leverage = abs(leverage)

        self.symbols = []

        self.result = dict()



    def DetermineTargetPercent(self, activeInsights):

            

        #2. Search for the active insights in this sector. Save the variable self.insights

        self.insights = [insight for insight in activeInsights if insight.Symbol in self.symbols]

    

        #3. For each insight in self.insights, assign each insight an allocation. 

        # The allocation is calculated by multiplying the insight direction by the self.percent 

        for insight in self.insights:

            self.result[insight] = insight.Direction * self.percent

        return self.result





    def OnSecuritiesChanged(self, algorithm, changes):

        for security in changes.AddedSecurities:

            self.symbols.append(security.Symbol) 



        for security in changes.RemovedSecurities:

            symbol = security.Symbol

            if symbol in self.symbols:

                self.symbols.remove(symbol)

        

        if algorithm.Portfolio.CashBook.TotalValueInAccountCurrency <= 25000 and self.leverage > 2:

            self.leverage = 2

        elif algorithm.Portfolio.CashBook.TotalValueInAccountCurrency > 25000 and self.leverage > 4:

            self.leverage = 4

        if self.leverage > 2:

            #PDT Margin Model for Short Trading... if any

            algorithm.Securities[symbol].MarginModel = PatternDayTradingMarginModel()

        

        #1. Set the self.percent (BuyingPower) before by dividing one by the length of self.symbols

        self.percent = Decimal(format(self.leverage / len(self.symbols), ".2f"))



        super().OnSecuritiesChanged(algorithm, changes)

Do you think it's a good way to manage leverage or maybe there are better ways? I noticed that the maximum leverage is 2 (more than 2 it can't fill the orders because they are over the margin allowed). Is it something that is fixed with the brokerage model (like interactive brokers) or there are ways to get a leverage higher than 2?

Best regards

Alessio Magri

1.2k ,

Found a good answer by Jing Wu here:

https://www.quantconnect.com/forum/discussion/500/update-margin-calls-and-portfolio-modeling

Derek Melchin

STAFF ,

Hi Alessio,

The cleanest way to implement leverage in the Framework is to inherit from InsightWeightingPortfolioConstructionModel and override CreateTargets

class MyPCM(InsightWeightingPortfolioConstructionModel):

    def CreateTargets(self, algorithm, insights):

        targets = super().CreateTargets(algorithm, insights)

        return [PortfolioTarget(x.Symbol, x.Quantity*algorithm.Securities[x.Symbol].Leverage) for x in targets]

Now we control the amount of leverage used for each symbol by setting a security initializer in Initialize with

self.SetSecurityInitializer(self.CustomSecurityInitializer)

and we define the CustomSecurityInitializer as

def CustomSecurityInitializer(self, security):

    security.SetLeverage(3.5)

See the attached backtest for reference. Learn more about security initializers in the documentation.

Best,
Derek Melchin

Alessio Magri

1.2k ,

Thank You Derek!

This is really a cleaner version!

Alessio Magri

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