A strategy’s tolerance factor refers to the limit placed on the maximum amount of investment. This feature protects both investors and strategy providers, operating as a safety mechanism.
The formula used to calculate this looks like this:
Maximum amount for an investment = strategy equity * tolerance factor
Calculating the tolerance factor:
The tolerance factor is a dynamic limit, weighted by the following:
-
Strategy’s age: For every 30 days from the day the first order is opened on the strategy account, the strategy gains a weight of 1.
- In case strategy age is calculated before the end of a calendar month (30 days), the age is represented as a fraction of 30. For example, if calculating on the 15th day, the strategy age weight will be 15/30 = 0.5 = 0 (rounded down).
- In case of a stop-out, the age will be reset to 0.
-
Strategy provider’s verification status: 2 statuses exist
- Fully verified - 2
- Not fully verified - 0.5
Example:
Let us calculate the tolerance factor of a strategy where the first order was opened 90 days ago, and the strategy provider is fully verified.
Strategy age = 90/30 = 3
KYC status weight = 2
=> tolerance factor = 3 + 2 = 5
If this strategy faces a stop out after 90 days, on the day of stop out the strategy age is set 0 and the strategy is hidden.
=> tolerance factor = 0 + 2 = 2
Once a strategy is hidden due to stop out, it can still be invested in by direct links that may be shared by strategy providers.
If a new order is opened on the strategy later, the age counter is reset. On the 10th day after the order is opened, strategy age = 10/30 = 0.33 = 0 (rounded down)
=> tolerance factor = 0 + 2 = 2
Using the tolerance factor to calculate the maximum amount of investment
Let us calculate the maximum investment amount for a strategy with an equity of 10,000 USD and a tolerance factor of 5.
Maximum amount that can be invested = 10,000 USD * 5 = 50,000 USD
Points to note
- The maximum tolerance factor is set at 14.
- A strategy’s total investment limit is set at 200,000 USD.