Leverage

RECENT NEWS
Benzinga  Apr 17  Comment 
On Thursday, Baird upgraded shares of SolarCity (NASDAQ: SCTY) from Neutral to Outperform and maintained the $75 price target. Analyst Ben Kallo expects a “boom” over the next several years in the U.S. rooftop market, and SolarCity is the...
SeekingAlpha  Apr 10  Comment 
By Left Banker: The ETRACS Monthly Pay 2xLeveraged Closed End Fund ETN (CEFL) is an exchange-traded note linked to the monthly compounded 2x leveraged performance of the ISE High Income™ Index, which comprises 30 closed end funds. The ETN is...
Financial Times  Apr 10  Comment 
Leveraged finance in Europe has made a near complete recovery from the crisis, with volumes last year reaching €124bn compared with €133bn in 2006
Financial Times  Mar 31  Comment 
Eaton Vance says company owners are seeking – and increasingly being granted – extra freedom to pile on more debt without recourse to existing lenders
SeekingAlpha  Mar 31  Comment 
By Harry Long: Previously, we explored Long-Biased Hedged Convexity Captures, a strategy which seeks to capture the negative convexity associated with leveraged ETPs. The idea behind Hedged Convexity Capture, as I outline in my book, is to capture...
SeekingAlpha  Mar 22  Comment 
By Alpha Gen Capital: Executive Summary CDW Corp. (CDW) is the leader in IT products and solutions to businesses and consumers. It can pull on multiple levers in order to expand share, while its scalable business model and best-in-class...
SeekingAlpha  Mar 19  Comment 
By Harry Long: Previously, we explored long-biased Hedged Convexity Captures, a strategy which seeks to capture the negative convexity associated with leveraged ETPs. The idea behind Hedged Convexity Capture, as I outline in my book, is to capture...
SeekingAlpha  Mar 18  Comment 
By Calafia Beach Pundit: In my post yesterday, I noted the importance of the decline in the private sector's demand for safe, short-term assets (e.g., bank savings deposits). I think this is a sign that the risk pendulum has stopped swinging in...




RELATED WIKI ARTICLES

Related Articles

 
TOP CONTRIBUTORS

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.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki