Definition
Leverage in investing refers to using various financial instruments or borrowed capital to increase the potential return of an investment. Common forms include margin trading, options, futures, and leveraged ETFs. While leverage can multiply gains, it equally amplifies losses and can result in losing more than the original investment. The degree of leverage is often expressed as a ratio (e.g., 2:1 means $2 of exposure for every $1 of capital). Understanding and managing leverage is crucial for risk management.
Formula
Example
With 2:1 leverage, a 10% gain in the underlying asset produces a 20% return on your capital. Conversely, a 10% loss becomes a 20% loss on your capital.
FAQ
What is Leverage?
Using borrowed capital or derivatives to increase potential investment returns.
How do you calculate Leverage?
A common formula for Leverage is: 杠杆比率 = 总敞口 / 权益资本; 杠杆回报 = 标的回报 x 杠杆比率
Why is Leverage important?
Leverage helps investors evaluate trading mechanics and make more informed decisions.