Introduction.
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1. Definitions**
*Leverage refers to an investor's ability to increase their ability to buy** by borrowing money. Put simply, leverage allows investors to use a smaller amount of their own funds to control a larger market capitalization. The purpose of this strategy is to amplify the return on investment, but it also increases the investment risk.
2. Definitions
In leveraged trading, it mainly refers to the interest and margin that investors need to pay on borrowings. Specifically:
1.*Interest on borrowing**: This is the fee that investors need to pay to the lender in order to use leverage. Interest rates will vary depending on market conditions and the policies of the lending institution.
2.*Margin**: Margin is a portion of the funds that investors need to deposit when opening a leveraged account as collateral. The amount of margin usually depends on the leverage and leverage that the investor wishes to use.
3. Calculation Method
The calculation of leverage involves a number of factors, including the investor's own funds, leverage, borrowing interest and margin requirements. Here's a simplified calculation:
1.*Determine the leverage**: First, investors need to decide how much leverage they wish to use. For example, if they have $10,000 of their own funds and want to use 5x leverage, then the ** market value they can control is $50,000.
2.*Calculate Margin**: Margin is usually a certain percentage of the investor's own funds. For example, if the margin requirement is 20% of their own funds, then the investor needs to deposit $2,000 as margin.
3.*Calculate borrowing interest**: Borrowing interest depends on the lending institution's interest rate and the amount borrowed by the investor. For example, if the annual interest rate is 5% and the investor borrows $40,000 ($50,000 - $10,000), then the interest for one year is $2,000.
Combining the above factors, the total cost of an investor when using ** leverage will be margin plus borrowing interest. In this example, the total cost is $2,000 (margin) + $2,000 (interest) = $4,000. This means that investors need to make more than $4,000 in profits to cover the cost of leveraged trading.
IV. Conclusions**
*Leverage is a strategy of increasing investment capacity by borrowing money, which allows investors to use a smaller amount of their own funds to control a larger market capitalization. However, this strategy also increases investment risk and requires additional borrowing interest and margin payments. Investors should fully understand the costs and risks when considering the use of leverage, and formulate reasonable investment strategies and risk management measures.