What Is Levarage
Leverage means borrowing money. It is an investment strategy used by investors and traders to reduce the risk and elevate the return of investment. Leverage is done with the use of several financial instruments and borrowed capital. Leverage is the debt amount that can be used to finance assets. The more a company is leveraged, the less its equity is. Hence, the company has more debts.
Leverage is connected to margin but is slightly different from it. Both leverage and margin are related to borrowing. Leverage is ‘taking’ the debt. Margin is invested in other financial instruments in form of money. Hence, margin creates leverage.
Leverage can be applied to trades in different sectors. From real estate to stock, from precious metals to FMCG. Leverage is a safe play method for many investors.
Leverage can also be implemented indirectly. Institutions and corporates usually go for applying leverage in many different ways. Leverage helps corporates in expanding and growing.
However, at times leverage can be complex especially for individual investors and traders. It is multi-faceted and the calculations can be too complex. Leverage has an ability to magnify. It can be either result into profit or loss.