Leverage (finance)

Leverage in finance refers to using borrowed money to increase the potential return on an investment. By borrowing funds, a company or individual can invest more than their own capital, aiming for higher profits. However, it also increases risk, since if the investment doesn’t perform well, they still owe the borrowed amount plus interest. For example, if you buy property with a mortgage, the leverage can amplify gains if property values increase but can also lead to larger losses if prices fall. Essentially, leverage magnifies both potential gains and potential risks.