Friday, August 17th 2018

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What are the advantages of financial leverage?

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19th Nov 2009 by Daniel Cross, ChFC

Using financial leverage such as margin accounts, options, and futures, can be very advantageous for an investor educated in these products. It allows an investor to control and trade far more than a direct purchase would allow. This can result in above average returns. For example: Let's say you buy 100 shares of XYZ at $50 a share and in one year, appreciates to $65. You would have made 30%. Now let's say you bought using 60% margin with a borrowing rate of 7%. You would have made 45.33% instead. The downside is that losses on margin are even greater because of the interest rate attached to the loan amount.

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19th Nov 2009 In Finance 1 Answers | 639 Views
Subjects: financial leverage,

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