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What is Financial Leverage?

Welcome back to Financial Empires, today we will see what leverage is, its definition, when it is used but above all why it is so important to know this financial instrument that over the years is increasingly finding space in the financial markets thanks to the new online investment methods. .

Definition

The term financial leverage is used to indicate a financial instrument of indebtedness that allows you to invest more money than you own that is why it is also called the debt ratio and is used among other things as an index to measure the level of debt of a company.

Why is leverage used?

Generally in business economics a company uses leverage to obtain benefits and therefore a profit greater than what can be expected with its own funds.

It must be said that as the debt used by the company increases, the expectations of a greater profit increase, but beware, the business risk also becomes proportionately greater, and therefore an incorrect assessment of the economic return and therefore a negative ROI could almost inevitably result in business failure.

Leverage in forex

Today, the investment methods have changed, the markets are more connected and the opportunities to invest greater, thanks to the technological revolution that has transformed the way in which economic operators come into contact with each other.

In fact, leverage or financial leverage is used, among others, by the vast majority of brokers, or financial intermediaries who make online investment platforms available to users.

Within these platforms you can make investments on your own risk capital multiplied by the leverage that the broker makes available to users based on their experience.

In other words, the broker helps you to increase your risk capital based on the leverage multiplier, thus obtaining the possibility of having greater profits calculated precisely on your multiplied capital.

Thanks for being with us, if you found this article on leverage interesting let us know by commenting below, see you soon and good continuation on Financial Empires.

The editorial team, Financial Empires

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FINANCIAL EMPIRES

FINANCIAL EMPIRES is a web site magazine founded by Corrado Firera in 2021. The mag is focused on business, money and Investments topics. Our first purpose is to give you information and news. Please be sure to read our disclaimer policy.

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