Finance
What is Financial leverage?
Financial leverage is using borrowed money to increase the potential return on an investment. It can amplify gains — but also magnifies losses, making it a powerful but risky tool used by investors and companies alike.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains financial leverage.
Key things to understand
- 1It means investing with borrowed money.
- 2It amplifies both potential gains and losses.
- 3More leverage means more risk.
- 4Used by traders, companies, and in real estate.
Frequently asked questions
- What is financial leverage?
- Using borrowed money to boost the potential return of an investment — which also increases risk.
- Why is leverage risky?
- It magnifies losses as well as gains; a small downturn can wipe out a heavily leveraged position.
- What's an example of leverage?
- Buying a home with a mortgage, or a trader using margin to control a larger position than their cash allows.