What is the definition of leverage in the context of investment?

Leverage in the context of investment refers to the practice of using borrowed funds to amplify the potential returns on an investment. By utilizing debt, an investor can increase the amount of capital they have available for investment, allowing for larger positions than what their own funds would typically permit. This can lead to significantly higher profits if the investment performs well, as gains are based on the total amount invested rather than just the investor's equity.

However, it is important to note that while leverage can increase potential returns, it also increases the risk, as losses can also be magnified beyond the initial investment. This concept is widely used in real estate, the stock market, and various business ventures, allowing investors to maximize their opportunities by accessing more capital than they would have solely through their own equity.