Leverage
What is Leverage?
Using borrowed money or derivatives to increase the size of an investment.
Understanding Leverage
Leverage amplifies results. With 2:1 leverage, a 10% gain on the investment becomes a 20% gain on your own money, before borrowing costs, and a 10% loss becomes a 20% loss.
Companies use leverage too, by funding operations with debt. High leverage raises the risk of large losses or default when things go wrong.