Using borrowed money to invest so that you control more assets than you could with only your own cash. Leverage amplifies both gains and losses. A small percentage move in the investment value creates a much larger percentage change in your actual profit or loss.
You have $5,000 and use leverage to control $20,000 of stock by borrowing $15,000. If the stock rises 10 percent to $22,000, your profit is $2,000, which is a 40 percent return on your $5,000. However, if the stock falls 10 percent to $18,000, you lose $2,000, which is a 40 percent loss on your cash.
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