Financial Times  1 hr ago  Comment 
Groups that flout the Federal Reserve’s guidance will probably face higher capital penalties as part of the regulator’s annual stress test
SeekingAlpha  Sep 21  Comment 
By The Value Investor: Civitas Solutions (NYSE:CIVI) provides home- and community-based health services for those having intellectual, physical or other needs. The company develops tailored service plans for these patients to live in a...
SeekingAlpha  Sep 12  Comment 
By Sober Look: US middle market leveraged buyout (LBO) transactions are becoming increasingly frothy. According to the latest data from Lincoln International, risk-return fundamentals in the space are worse than they were in 2007. Here are some...
Reuters  Sep 6  Comment 
Leveraged exchange-traded funds, designed to magnify short-term returns, have fallen out of favor this year as investors who had embraced them are finding costs excessive in a calm market that is not rewarding bets on wild daily swings.
Finance Asia  Sep 2  Comment 
The region's leveraged loan markets are still liquid as banks are willing to lend and private equity have funds to deploy says a BofML loan specialist.
Finance Asia  Sep 1  Comment 
The region's leveraged loan markets are still liquid as banks are willing to lend and private equity have funds to deploy says a BofML loan specialist.
SeekingAlpha  Aug 27  Comment 
By Philip Mause: I have written about the private market strategy previously. In the first article I discussed companies selling well below net asset value and in the second article I discussed situations in which investors could acquire cash flow...
SeekingAlpha  Aug 22  Comment 
By Cliff Smith: As I have developed simple hedge strategies such as the Tactical Hedge Strategy, THS, I have become intrigued with the idea of using short inverse leveraged ETFs instead of long leveraged ETFs. There does not seem to be much...
SeekingAlpha  Aug 19  Comment 
By Dallas Salazar: There's a growing force in the hotel space that is slowly, actually rather quickly, becoming the market leader in the select service niche - this force is La Quinta Holdings, Inc. (NYSE:LQ). La Quinta just put on a smoke show of...


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Leverage is the use of margin to increase the potential return of an investment. Leverage can also mean the amount of debt a company uses to finance operations. A company with lots of debt and little equity is classified as highly leveraged.

In the securities business, brokers will typically lend 50 percent of the value of stock to be purchased. Some stocks, who may be viewed as exceptionally risky, may not be eligible for margin purchase; the broker will not lend out funds to purchase those securities.

For example, say you buy $1,000 worth of stock in company ABC at $100 per share. You have a total of 10 shares in company ABC. If you wanted to leverage your $1,000 to increase the potential return on your investment, instead of buying stock in ABC you could buy 4 option contracts at $2.50 each ($2.50 x 100 = $250) and control 400 shares instead of just 10 shares. Keep in mind that both risk and reward are magnified with leverage.

When the leveraged securities in the account begin to witness losses, the broker may issue a margin call. When the value of the equity gets close to the value of the loan, the broker will notify the investor that he needs to add more collateral in the form of cash or more securities. If the investor does not meet the margin call, the broker will sell the equities in the account to pay himself back, and give the rest to the investor. This may cause a problem to the investor. The stock may be depressed, poised to come back, but he is forced to transact. This is why holding leveraged positions is risky and is detrimental to some investing strategies.

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