Loss recovery and leverage calculator
Enter a fall and see the rise needed to get back. Then add borrowed money, an interest rate and a price move, and see what leverage does to the return on your own money, including the move that wipes it out.
Prefilled with: the losses post's Nifty 50 index fund fall in 2008, and the leverage post's illustrative margin trade.
What it does
Two questions that look simple and aren’t.
- Getting back from a fall. A fall and the rise that undoes it are not the same size, because the rise starts from a smaller base. Enter any fall and the calculator gives the rise needed to break even.
- The same move, with borrowed money. Enter your own money, what you borrow, the interest rate, how long you hold and the price move. It shows your leverage, the interest bill, the rise needed just to cover that interest, the return on your own money, and the fall that wipes your own money out. If a loss is bigger than your own money, it shows what you’d still owe.
It starts from the posts’ own examples, so you can check it against them before trying your own numbers. Reset to the post’s example puts them back.
The formulas
Gain needed to recover from a fall L = 1 / (1 − L) − 1
Interest = Borrowed × rate × months / 12
Profit or loss = Position × price move − Interest
Return on your own money = Profit or loss / Your own money
Fall that takes all of it = −(Your own money − Interest) / Position
The position is your own money plus what you borrow; leverage is the position divided by your own money.
What it leaves out
Brokers don’t wait for a position to lose everything: a margin call comes first, and the position may be sold at the low. Margin rules, interest rates, brokerage and taxes vary and aren’t modelled. The interest rate you start with is the leverage post’s illustrative one, not any broker’s.
How it works
The method, step by step, with the worked example this tool reproduces: The arithmetic of losses: why −50% needs +100%.