Financial leverage, or leverage, involves using borrowed funds to increase the potential return on an investment.
It magnifies the impact of gains or losses by allowing an investor to control a larger position with a smaller amount of capital.
This amplification of risk and return is known as financial leverage. While it can enhance profitability, it also increases the exposure to losses.
Investors and businesses must carefully manage leverage to balance the potential for increased returns with the heightened risk of financial distress.
