Leverage

       In finance, leverage (sometimes referred to as gearing in the UK is any technique involving the use of borrowed funds in the purchase of an asset, with the expectation that the after tax income from the asset and asset price appreciation will exceed the borrowing cost.

Normally, the finance provider would set a limit on how much risk it is prepared to take and will set a limit on how much leverage it will permit, and would require the acquired asset to be provided as collateral security for the loan. For example, for a residential property the finance provider may lend up to, say, 80% of the property's market value, for a commercial property it may be 70%, while on shares it may lend up to, say, 60% or none at all on some shares. Leveraging enables gains and losses to be multiplied. On the other hand, there is a risk that leveraging will result in a loss — ie., it actually turns out that financing costs exceed the income from the asset, or because the value of the asset has fallen.