Leverage in Finance
Leverage is a financial technique involving the use of borrowed funds or debt rather than investment capital or equity to purchase an asset. The asset may be real estate, a business, or some other significant asset.
Leverage is commonly used to increase the potential return when acquiring an investment or asset, but it also has the potential for increasing losses. Leverage magnifies both gains and losses. Profits or gains are magnified when the return from the asset more than offsets the cost of borrowing. Likewise, losses are magnified when the return from the asset is less than the cost of borrowing.
The use of leverage is for those investors willing and able to accept a higher than average level of risk in order to achieve a higher than average level of return on their investment.