1. The process of applying a small force that multiplies into a large effect. 2. The action of a lever. 2. The mechanical advantage or power gained by using a lever. 3. Power or ability to act effectively or to influence people. 4. The use of a small initial investment to gain a relatively high return. Using a small amount of your own money to make an investment of much larger value, thus gaining significant financial power. For example, if you borrow 80% of the cost of a property, you are using the leverage to buy a much more expensive asset than you could have afforded by paying cash. If you sell the property for more than you paid for it, the profit is yours. The reverse is also true if you sell at a loss, the amount you borrowed is still due and the loss is yours. Buying stock on margin is a type of leverage, as is buying a futures or options contracts. Leveraging can be risky if the underlying asset doesn’t perform to your expectations.
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