Börsenlexikon: Leverage

Leverage or leverage effect through which a capital employed is disproportionately affected by the occurring development. If, for example, the effective interest rate for loans is below the interest rate on the capital market, the investor can sometimes significantly increase the profitability of his investments with funds borrowed and reinvested on the capital market. If the interest rate trend reverses, on the other hand, the investor loses disproportionately. Such a leverage effect with the corresponding positive or negative consequences is also referred to in connection with warrants and options (cf. warrants, options, leverage effect).