Generally speaking, leverage pertains to the total sum of borrowed funds. It is used not just to acquire physical assets like houses or cars, but also to be able to trade financial assets like equities and forex.
So what makes trading leverage special? Similar to how companies are privileged to invest in their projects, investors themselves are also given the privilege to load money and are able to leverage the money they invest on. Leverage provides them the ability to strengthen each point related to a stock whenever it goes up. Should traders choose the right investment; its margin can greatly increase their profits.
A 50% in initial leverage allows traders to buys up to double the stocks they want with only the money they have in their accounts. What’s really important is if your stock will rise or fall. It is a usual occurrence in for those in the investing world to get into debates with each other regarding the possibility of consistently picking the winning stocks.
The Other Side of the Coin
Not everything is all smooth sailing. Just like everything, leverage comes with its own risks and is not for all investors. Leverage is something similar to a double-edged sword in the sense that the degree of gains and loss are at the same level.
Generally, a 50% loss is already bad for any trader. With leverage however, this is only the beginning. Should there be an additional 50% decline or more, then the trader may stand to lose more than 100%, counting the interest and commissions.