A strategy’s Tolerance Factor refers to the limit placed on the max amount of an investment. This feature protects both investors and strategy providers, operating as a safety mechanism.
The formula used to calculate this looks like:
Max amount for an investment = strategy equity * tolerance factor
How is the Tolerance Factor calculated:
The Tolerance Factor is a dynamic limit, weighted by the following:
- A strategy’s age: starting from the date of creation, a strategy will gain a factor of 1 every 30 days it remains active. Should the strategy experience stop out, the weight will reset to 0.
- The strategy provider’s verification status: 2 states exist, either fully verified or not fully verified and these are weighted at 2 and 0.5 respectively.
Example: A 90-day old strategy by a fully verified strategy provider calculates the Tolerance Factor as 3*1 + 2 = 5.
If a strategy has an equity of USD 10 000 and a Tolerance Factor of 5, the final calculation would look like this:
USD 10 000 * 5 = USD 50 000 - therefore the limit on the investment would be USD 50 000.
Remember: A strategy’s total investment limit is always USD 200 000, limiting the overall amount of equity possible in a strategy. Tolerance Factor is always calculated with this limit considered.