Leverage is the use of borrowed funds to increase the potential return of an investment, allowing traders to control larger positions with a smaller amount of capital.
Leverage enables investors to amplify their market exposure by borrowing money from a broker. It is widely used in stock trading, forex, and derivatives like futures and options.
While leverage can increase profits, it also magnifies losses, making it a high-risk strategy.
In India, leverage usage is regulated by the Securities and Exchange Board of India.
Leverage is a powerful tool but must be used carefully, as it can quickly increase both gains and losses.
"<ul> <li>Your own capital: ₹10,000</li> <li>Leverage: <strong>5x</strong></li> <li>Total investment: ₹50,000</li> </ul> <p>👉 If stock price increases by <strong>10%</strong></p> <ul> <li>Profit = ₹5,000 (10% of ₹50,000)</li> <li>Your return = <strong>50% gain</strong> on ₹10,000</li> </ul> <p>👉 If stock price decreases by <strong>10%</strong></p> <ul> <li>Loss = ₹5,000</li> <li>Your loss = <strong>50% of your capital</strong></li> </ul>"