Definition of 'Leverage'

1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.

Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.

Investopedia explains 'Leverage'

1. Leverage can be created through options, futures, margin and other financial instruments. For example, say you have $1,000 to invest. This amount could be invested in 10 shares of Microsoft stock, but to increase leverage, you could invest the $1,000 in five options contracts. You would then control 500 shares instead of just 10.

2. Most companies use debt to finance operations. By doing so, a company increases its leverage because it can invest in business operations without increasing its equity. For example, if a company formed with an investment of $5 million from investors, the equity in the company is $5 million - this is the money the company uses to operate. If the company uses debt financing by borrowing $20 million, the company now has $25 million to invest in business operations and more opportunity to increase value for shareholders.

Leverage helps both the investor and the firm to invest or operate. However, it comes with greater risk. If an investor uses leverage to make an investment and the investment moves against the investor, his or her loss is much greater than it would've been if the investment had not been leveraged - leverage magnifies both gains and losses. In the business world, a company can use leverage to try to generate shareholder wealth, but if it fails to do so, the interest expense and credit risk of default destroys shareholder value.

Read more: http://www.investopedia.com/

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I have a badminton session today with CT and AL. Then, as we were talking, I was interested how both of them using the leveraging-concept. As they are into businesses, I find it good to learn from them how businessmen think. Yes, they are in B-quandrant where a person like me(and the majority) who are employees are in E-quadrant ... certainly THINK differently when it comes to money, particularly about LEVERAGING(gearing).

I do share with them how I do use financial facilities to leverage ... and I am taking a higher risk than majority in stock-market. RISK as it is defined could be managed and reduced if we know how. If we dont, we should learn. So, I have in me ... always thinking of how to increase my financial knowledge. Yup, I gathered some very important information from CT(thanks, buddy) on how I could leverage further in my trading.

On top of that, we all should leverage on each other expertise and work together for the mutual benefits. Yes, no one could do many things alone .... and I have my tratle's group(growing into around 50 soon) where we could share information and learn from each other.



1st gathering : Last night, somehow I pushed for a gathering ... 10 of us turned up!! Yup!! Getting to know each and every of them will take me TIME. Wanting to foster a better rapport amongst us and to see how we could help each other. It is really a 'cikgu' kinda wish ... and helping those slower ones too ... I do not wish to see anyone 'left-behind'.

Let us leverage on each other's knowledge and continue to share ... to learn.



TEH