Leverage: how to become richer quickly... or totally broke in a few days:
Leverage is seen by many people as a magical tool.
Leverage results from using borrowed capital as a funding source when investing to expand the firm's asset base and generate returns on risk capital.
You can use leverage to invest in properties but you can also use it to invest in the stock markets. We will focus on leverage when investing in stocks in this post. Let's assume that an investor has bought only one stock and that in doing so he used a leverage of 2. What it means is that if this share price go up by 10%, the investor will actually win 20%. That sounds great. However if this same share price loses 10%, this would mean that the investor would actually lose 20%. Even worse, (and this where all the problems are) if the share price loses 50% at any point of time, the investor would have lost all of his or her investments! If you are not convinced about the drawbacks of using leverage when investing in stocks, just think about the following scenario: You buy a stock at a price of $10, after a couple of weeks the share price reaches $11, then suddenly following bad news it decreased to $4.9 before coming back to $11. An investor using no leverage would have made a 10% profit while an investor using a leverage of 2 would have lost every penny. At Anh Thomas Investment we are strong opponents of leverage. We have seen many people losing a lot of money in stocks using leverage and we believe that this is indeed the best way to lose money very fast.