Glossary

Leverage is the use of borrowed funds or financial instruments to amplify returns from an investment.

It allows investors and businesses to increase their exposure to an asset or investment without committing more of their own capital. However, it also magnifies potential losses, making leveraged investments riskier.

For example, if an investor uses a 2:1 leverage ratio to buy stocks, they can purchase $2,000 worth of stock with only $1,000 of their own money, borrowing the remaining $1,000.

Fun fact: In the world of finance, the term "leverage" originated from the simple machine principle of the lever, which amplifies force and allows a small effort to move a large load. ⚖️