# 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.