Leverage and Margin

Leverage is the use of borrowed resources (money or financial instruments) to increase exposure to an investment or activity, aiming to amplify potential returns.

Leverage = controlling a larger position with a smaller amount of your own capital

How it works

When a company or investor uses debt instead of only their own capital:

• If returns are higher than the cost of debt, leverage amplifies profits
• If returns are lower than the cost of debt, leverage amplifies losses

So leverage increases both opportunity and risk.

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Where financial leverage is used

• Corporate finance (business expansion, acquisitions)
• Investment & trading (stocks, derivatives, forex, crypto)
• Real estate (mortgages)
• Private equity & IPO structuring

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Key takeaway

Financial leverage magnifies outcomes:
higher leverage = higher potential return + higher risk.

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Margin is the money you deposit with a broker to open and maintain a leveraged trading position.

Margin is a security deposit, not a fee, that allows you to trade a larger position than your actual cash.

How margin works

• You deposit a small amount of capital (margin)
• The broker allows you to control a larger position
• The remaining amount is effectively borrowed from the broker

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Key Margin Terms

Key takeaway

Key takeaway

Margin enables leverage, but poor margin management is the main cause of trading losses.