In a platform like the stock market, everyone wants to make a profit out of the trade. Otherwise, what is the point of it to start with? Some go even a step further to find a way to make a bit more than they can afford to invest themselves. This is where leverage comes in.
What is it precisely?
To put leverage meaning into a precise definition, leverage is the practice of borrowing money from a different body to invest in the trade to amplify its return. But there is a risk because when the return is being levered, the rate of gain or loss, whichever it has to be increases simultaneously.
How to use leverage indirectly?
- Investors can analyze the balance sheet of the companies which have leverage daily.
- One can utilize the statistics of return on equity, equity debt, and return on capital employed.
- This evaluation narrows down the chances and helps to determine whether to approach for indirect leverage or not.
The easy way
Research and analysis of the record sheet might be straining or just not preferable for some individuals. They can invest in mutual funds or exchange-traded funds that use leverage. This way, one can make use of leverage indirectly without having to go through the evaluation procedure.