Skip to content
Know.itKnow.it
Create an animated lesson
On request

This article is free to read. Creating a lesson uses your daily or stored credits; review the language and settings before starting.

What is financial leverage?

FinanceLesson on requestFree to read

Quick answer

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. It means investing with borrowed money.

Key things to understand

  1. It means investing with borrowed money.
  2. It amplifies both potential gains and losses.
  3. More leverage means more risk.
  4. Used by traders, companies, and in real estate.

People also ask

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.