The concept of leverage is widely used in finance, from describing company balance sheets to investing and trading stocks, derivatives, and cryptocurrencies. If an individual or entity is said to be highly leveraged, then their debt is large in relation to their assets or equity.

Companies use leverage when they finance operations, projects, or asset purchases by issuing debt rather than selling equity or using cash on hand. By taking about loans for large purchases, such as a mortgage to buy property, individuals also take advantage of leverage. Whether in business, investing, or personal finance, the purpose of using leverage is to increase the opportunity for returns.

However, using leverage increases risk because it requires traders to use borrowed funds which must always be paid back – regardless of whether the investment is successful. This means that borrowers using leverage can lose more than their initial investment.

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