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hOUSAS | Can someone explain to me in plain ENGLISH what does " leverage" mean? |
I ususally hear this ...leverage this leverage the other ...we are down 10 to 1 leverage....? in plain english what does "we are down 10 to 1" mean
Additional Details
ok thanks guys....so leveraging means " Let me invest with someone else s money |
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NIkki
 |
Some brokers allow you to buy on "margin"...to "leverage", that is, you only have to put up one dollar to buy 10 dollars of stock. You ARE responsible for the rest of the money and are charged interest, like in a loan, on the money to make up that other 9 dollars. |
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Gu-Babilônia_37_anuuus
|
The what?
Lever in plain English that means?
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Jay
|
How nice that so many simply quoted the dictionary.
In investing, this refers to being able to buy more than you have cash for. The theory is that the investment will go up in value and you can sell it, pay back the "loan," and still make a profit.
For example, suppose I have $100. With "10 to 1" this means that I can buy up to $1000 (10x$100) in stock. I pay $100 and borrow the other $900 (from the broker).
If the stock goes down, the broker will make me find that extra money, so it's a risky thing. |
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Eddy
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levâ‹…erâ‹…age
   /ˈlɛvərɪdʒ, ˈlivər-/ Show Spelled Pronunciation [lev-er-ij, lee-ver-] Show IPA Pronunciation
noun, verb, -aged, -agâ‹…ing.
–noun
1. the action of a lever.
2. the mechanical advantage or power gained by using a lever.
3. power or ability to act or to influence people, events, decisions, etc.; sway: Being the only industry in town gave the company considerable leverage in its union negotiations.
4. the use of a small initial investment, credit, or borrowed funds to gain a very high return in relation to one's investment, to control a much larger investment, or to reduce one's own liability for any loss.
–verb (used with object)
5. to exert power or influence on.
6. to provide with leverage.
7. to invest or arrange (invested funds) using leverage.
Origin:
1715–25; lever + -age
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|
eternal student
 |
Leverage is implemented by the use of borrowing to supplement your own capital. In plain English leverage means to multiply. If you are 10x1 leveraged, then your profits would multiply 10 times (than without leverage). That is the good news. The bad news is the losses also multiply 10 times when things go against you. So, you have magnified your risk with leverage.
Without the context, we can only guess the meaning of the phrase "we are down 10 to 1". Perhaps the author is saying that leverage has been reduced from a higher level say 20 to 1 down to 10 to 1. |
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♥Μοοgle♥♥¸.•*´`
|
1. the action of a lever.
2. the mechanical advantage or power gained by using a lever.
3. power or ability to act or to influence people, events, decisions, etc.; sway: Being the only industry in town gave the company considerable leverage in its union negotiations.
4. the use of a small initial investment, credit, or borrowed funds to gain a very high return in relation to one's investment, to control a much larger investment, or to reduce one's own liability for any loss.
–verb (used with object) 5. to exert power or influence on.
6. to provide with leverage.
7. to invest or arrange (invested funds) using leverage.
maybe they made a bet on the game.. |
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Kay
|
It is a ratio of debt to equity. It means how much you owe against what you own. For example, a bank has in its reserve $10 mil. For a leverage of 10 to 1, this bank is lending (taking credit risk) $100 mil by the bank borrowing money from Federal Reserve Bank, other commercial banks and/or other financial institutions. The root cause of our current economic crisis is Fed's and SEC loosened regulations allowing the leverage of 40 or 45 to 1 thereby banks and financial institutions taking too much risks, ended up with too much debts which caused them illiquid to pay back. |
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wilderwriter
|
It has acquired a lot of notoriety in relations to what is commonly called a "leveraged buyout" where the buyer uses the some of the entity's value to arrange a loan to purchase the entity. The specific phrase you asked about appears to address the Debt-to-Equity ratio. |
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dk
 |
leverage is borrowing to invest or buy things. 10 to 1 means for example that for each 10 dollar I invest I have 1 dollar to cover potential losses that I might have. |
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Dee
 |
lev⋅er⋅age   /ˈlɛvərɪdʒ, ˈlivər-/ Show Spelled Pronunciation [lev-er-ij, lee-ver-] Show IPA Pronunciation
noun, verb, -aged, -agâ‹…ing.
–noun 1. the action of a lever.
2. the mechanical advantage or power gained by using a lever.
3. power or ability to act or to influence people, events, decisions, etc.; sway: Being the only industry in town gave the company considerable leverage in its union negotiations.
4. the use of a small initial investment, credit, or borrowed funds to gain a very high return in relation to one's investment, to control a much larger investment, or to reduce one's own liability for any loss.
–verb (used with object) 5. to exert power or influence on.
6. to provide with leverage.
7. to invest or arrange (invested funds) using leverage.
Remember BEST ANSWER! |
|
Thor
 |
While not the dictionary definition you might think of it as meaning "to multiply".
If they are at 10 to 1 leverage it means they bought by putting only 10% down, only 10 cents on the dollar value purchased.
This means if it goes up 10% on the dollar they make a 100% return.
This also means it only has to fall 10% and the whole investment is wiped out to zero. That is the risk mentioned.
It multiplies both the reward and the risk by the same amount. And like with buying stocks on margin which only allow a 2 to 1 leverage then if stocks fell 50% you are wiped out. And unlike options if they go lower you would even owe money.
With homes if you put a 10% down payment you are leveraging 10 to 1. And lenders loaned with little or no down payments, the lenders betting prices would only go up.
But they went down and many people owe more money on their homes than they have or the homes are worth and that is part of the current problem.
It is definitely a double edged sword. |
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