Leverage is the use of borrowed funds (debt) to increase the potential return from an investment or project.

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Both individuals and companies use leverage to acquire assets or finance operations with the expectation that the returns generated will exceed the cost of borrowing.

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While leverage can amplify profits when investments perform well, it also increases the risk of losses, as debts must be repaid regardless of investment outcomes. A company, property, or investment described as "highly leveraged" has more debt than equity in its capital structure.

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Example in FX:

Suppose you want to trade the EUR/USD currency pair and your broker offers you 30:1 leverage, which is common in many regulated markets.

• Leverage Ratio: 30:1 means for every $1 of your own money (margin), you can control a $30 position in the market.
• How it works: If you deposit $1,000 as margin, you can open a position worth up to $30,000 (your margin multiplied by the leverage ratio).
• Potential impact: If the trade moves in your favor, your profits are calculated on the full $30,000 position, not just your $1,000 deposit-so gains are amplified. However, if the trade moves against you, losses are also magnified, and you could lose your entire margin quickly.

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