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Leverage - Definition
Below, you'll find a definition of this investing term...

Definition: The use of various instruments to increase one's rate of return.  In regards to business, leverage refers to using heavy financing for various activities.

TeenAnalyst Advice: Most people think of options and futures as a way to leverage your money.  The idea is that you essentially borrow money to increase your investing power.  In futures, a person can buy $30,000 worth of corn for only $3,000 of their own money.  If the corn goes up 10%, they will make $3,000 (a 100% return).  This is one example.

Companies with a lot of debt are considered to be highly leveraged.  You might remember that leverage was the reason Enron went under.

 

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