Leverage
The use of debt or a financial product to increase investment exposure.
Definition
The use of debt or a financial product to increase investment exposure.
Why this concept matters
It can amplify the return on personal capital when the investment performs favourably.
How it works
Debt makes it possible to control an asset worth more than the personal capital committed. Changes in the asset are then measured against a smaller deposit, amplifying gains and losses.
Calculation guide : Simple leverage = asset value ÷ personal capital committed
What to watch
It also amplifies losses and may create repayment obligations regardless of asset value.
Simple example
Buying a £200,000 asset with a £40,000 deposit creates exposure five times the deposit.
Example currency : United Kingdom (GBP). The reference country controls the example currency.
Try the mechanism
Educational estimate only, with no personalised advice or guarantee.Related concepts
Risk of loss · Loan amortisation · Gross and net rental yield
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