2 Answers

Leverage is borrowing money to use as funds to invest in something else.  For example, you bought 200 shares of Apple Computer at $75 per share 6 years ago.  Instead of coming up with $15000, you only came up with $7500.  Can you meet the margin requirement?  Yes, you can since you're borrowing 50% of the cost to have the opportunity to grow at twice the speed.  This only works if Apple stock goes up.  You're said to use leverage to gain ownership to Apple stock.  Indeed, 6 years later, Apple stock has gone over $420 per share, making your risk to borrowing the money or leverage a worthwhile investment since it grew to $84000 (you only owe the bank $7500 plus interest)....However, if you did the same thing with RIMM or Research in Motion stock years ago, you'd have lost your shirt since Research in Motion went down from $75 to around $12 per share.....Lesson to be learned?  Never ever buy stock on Margin!

lev·er·age/?lev(?)rij/
Noun:
The exertion of force by means of a lever or an object used in the manner of a lever.
Verb:
Use borrowed capital for (an investment), expecting the profits made to be greater than the interest payable.
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