Meaning and effect
Leverage makes it possible to create market exposure greater than one’s own funds by borrowing or through the structure of an instrument. It magnifies the effect of a price movement on an investor’s capital. In addition to market losses, financing costs and requirements for additional collateral may arise.
Illustrative example
If an investor contributes 100 thousand roubles of their own funds and borrows another 100 thousand to buy an asset, a 10% fall in the value of the total position produces a loss of 20 thousand roubles before expenses. This equals a loss of 20% of the investor’s own capital while the debt amount remains unchanged. The example does not account for forced-closure rules or interest.
Risk boundaries
Leverage does not make a small price movement safe. In an adverse scenario, an intermediary may close the position before the investor expects the market to recover, and some structures allow losses beyond the amount initially contributed. It is useful to check the full collateral mechanism and debt obligations. The ability to borrow does not mean that the risk matches the investor’s financial capacity or objective. Related reading: [futures and options](/guides/futures-and-options/), [portfolio risk](/guides/portfolio-risk/) and [futures](/glossary/fyuchers/).