Leveraging - Financial definition

In finance, leveraging involves utilizing borrowed funds, typically through loans or issuing bonds, to amplify the potential returns of an investment beyond what could be achieved with solely the investor's own capital. This strategy can magnify gains in prosperous times but also intensify losses during downturns, as the borrowed funds must be repaid regardless of the investment's performance.

Leveraging is commonly practiced in various financial markets, such as real estate, where investors use mortgage loans to purchase properties, or in corporate finance, where companies issue bonds to finance expansion projects. However, prudent risk management is essential when employing leveraging to avoid excessive debt burdens and potential financial distress.