importance of leverage in investing.

In investing,leverage refers to the use of borrowed funds or debt to increase the potential return on investment. When an investor uses leverage, they are essentially using borrowed money to invest with the expectation that the return on the investment will exceed the cost of borrowing.

Leverage can be used to amplify gains or losses on investment, as the borrowed funds increase the investor’s exposure to the underlying asset. For example, if an investor uses leverage to purchase real estate and the real estate price increases, the investor can earn a higher return on their investment than if they had purchased the real estate without leverage. However, if the real estate price decreases, the investor can suffer larger losses than if they had not used leverage.

While leverage can increase potential returns, it also comes with higher risks and costs, such as interest on borrowed funds and potential losses. It is important for investors to carefully consider the risks and benefits of leverage before using it in their investment strategies.