> For the complete documentation index, see [llms.txt](https://docs.mooncake.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.mooncake.fi/concepts/leveraged-tokens-lt/effective-leverage.md).

# Effective Leverage

Effective Leverage measures how much exposure to the underlying token’s price movements a Leveraged Position represents at the current time.

At Initialization / Rebalance:

$$
\text{Target Leverage} =
\text{Effective Leverage} =
\frac{\text{Underlying Token Value}}{\text{Leveraged Vault Value}}
$$

Afterwards (dynamic):

$$
\text{Effective Leverage} =
\frac{\text{Underlying Token Value}}{\text{Leveraged Position Value}}
$$

This ratio adjusts over time as the price of the underlying token changes, showing how leverage drifts away from the initial setting until the next rebalance.