Leverage refers to the use of borrowed funds or financial instruments to increase the potential return on an investment. In other words, leverage is the practice of using a small amount of money to control a larger amount of assets.
Leverage can be used in many different contexts, such as in investing, business, and finance. In the context of investing, leverage is often used by traders to increase the size of their positions and potentially amplify their profits. For example, if an investor has $10,000 to invest and uses leverage of 2:1, they can control $20,000 worth of assets.
However, leverage also comes with increased risk, as losses can be magnified just as much as potential gains. If the investment goes against the investor, losses can be significant, and the investor may be forced to liquidate their position to cover the borrowed funds.
Therefore, it’s important for investors to use leverage with caution and have a thorough understanding of the risks involved.
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