Leverage, in the most general sense, means using borrowed funds to increase the potential return of an investment. For example, financing a business with debt to help it expand more would mean deploying leverage.

Leverage is also widely used in trading, so-called margin trading, a strategy you execute by borrowing funds to amplify your potential returns. What could be your gain trading without leverage, gets multiplied by the factor of leverage in margin trading. You increase the return on investment of your own funds because you’ve not only used your own capital but also someone else’s to derive the gains.

It’s important to understand that, just as leverage can multiply your returns, it does the same with your losses.

To read specific examples of how Leverage works and how you benefit from it, check out THIS article.

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