Pedestrians are seen reflected in a quotation board displaying stock prices on the Tokyo Stock Exchange in Tokyo on May 7, 2020. Tokyo stocks opened lower on May 7 after a three-day public holiday, tracking recent declines on Wall Street caused by weak economic data. (Photo: AFP)

What is leverage?

In the sphere of finance and investments, leverage is the technique of using borrowed funds (debt) to purchase assets and/or make investments. This technique can be employed if the investor does not want to invest new cash (equity).

A very common form of leverage used by individual investors is known as “margin”. This is when the investor borrows from their investment broker, using their current financial investments as security for the loan. The borrowed funds are then used to make additional investments.

Using leverage to increase assets/investments should magnify the profits of the investment and compensate the investor for the added risk. This method of investing can be very efficient if the net profit from the investment exceeds the cost of borrowing.

http://www.jamaicaobserver.com/sunday-finance/earn-more-using-leverage_193783