Risk glossary

 

Leverage

1) The ability to control large amounts of an underlying variable for a small initial investment. Futures and options are leveraged products, because the initial premium paid is usually much smaller than the nominal amount of the underlying. Leverage is usually measured as the effective gearing.

 

2) The use of borrowed funds by investment funds to increase the size of their balance sheet, thus buying more assets than the capital provided by the fund’s investors.

* see also gearing

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