Leverage

Leverage in the stock market means borrowing money to increase your investment power.

In simple terms, you use borrowed funds (from a broker or financial institution) along with your own money to buy more stocks than you could afford with just your own capital.

Thus, leverage/margin allows you to buy more shares than you can afford by borrowing from your broker.

Key Features of Leverage:

• Higher potential profit, but also higher potential loss.
• Losses can exceed your original investment.
• Usually involves margin trading (using a margin account).
• Brokers may issue a margin call if your losses grow too large, forcing you to add more funds or sell your holdings.

Example: How Margin/Leverage Works?

Suppose you have Rs 5,000 of your own money.
If your broker offers 5x leverage, you can borrow Rs 20,000 more, giving you Rs 25,000 total to invest.

• If your stock goes up 10%, your investment becomes Rs 27,500.
  • You pay back the Rs 20,000 borrowed → you’re left with Rs 7,500, which is a 50% profit on your original Rs 1,000.

But leverage works both ways:

• If the stock falls 10%, your investment becomes Rs 22,500.
  • After repaying Rs 20,000, you’re left with Rs 2,500, which is a 50% loss.