Leverage


Borrowing capital to invest in more stock than what you can afford on your own is called leverage. Stock market leverage can increase your return on investment, but you can lose extra money than when buying stock using only funds. Leverage is an investment strategy of using borrowed money to increase the potential return of an investment. Leverage also consider as the amount of debt a firm uses to finance assets.


The concept of leverage is employed by both investors and companies:

Investors use leverage to significantly increase the returns that can be provided on an investment. They raise their investments by using various instruments, including options, futures, and margin accounts.


Companies can use leverage to finance their assets. Instead of issuing stock to raise capital, companies can use debt financing to invest in business operations in an attempt to increase shareholder value.


Investors who are not comfortable using leverage directly have multiple ways to access leverage indirectly. They can invest in companies that use leverage in the normal course of their business to finance or expand operations without increasing their expenses.

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