Leverage

Leverage refers to using borrowed money to amplify potential returns from an investment or business activity. Whether by taking out loans or using financial instruments like options, futures, or margin trading, individuals and companies can access more capital than they currently have, aiming to boost profits. However, this increased buying power also comes with greater risk—if investments don’t perform as expected, losses are magnified as well. Leverage is commonly seen when a business finances growth through debt rather than issuing more stock, or when investors borrow funds to take larger positions in the market. An investment is called highly leveraged when debt outweighs equity in its capital structure. While leverage offers the possibility of higher gains, it also raises the stakes if things go wrong.