Leverage

Leverage is the prefered word in the U.S. to what we call ' gearing '.

It's the ratio of a company's debts to its equity. In other words, the ratio of borrowings to its share capital.

People who like to take a risk when it comes to investing will borrow money to invest. Such people are said to be gearing up.

If you borrow to invest, it doesn't take the brain of Einstein to see that if things go well, the gearing effect means you can make bundles of money. Equally, if things go wrong, you could lose a packet.

See Also: Online share dealing service Stockmarket Centre

Last Updated: November 2007 © Moneyextra.com

MoneyExtra.com recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.