Leverage and losses

This educational tool is free to use without an account. Change one input at a time, compare results and read the example and assumptions below. Results are illustrations, not forecasts or personal offers.

Leverage is increasing exposure using debt or another mechanism.

Educational calculators only. Assumptions are not a quote or financing approval.

Using the result

Start with fictional amounts that are easy to check without a calculator. Write down the inputs and the first result, then change just one assumption. This helps you identify what caused the difference instead of changing several factors together. Check whether amounts are monthly or annual, which currency is used and which costs are included. Two decimal places do not make an assumption certain. Finally, explain the result in your own words, identify missing information and note what you would need to verify before using real money.

Explanation and example

It can magnify both gains and losses relative to the money you invested yourself. The debt and interest do not disappear when the asset falls. In some situations you can lose more than your equity and be required to add money or sell. The lesson demonstrates risk; this is not leveraged trading.

Practice example

You have 100 ₪, you borrow another 100 and invest 200. After a 25% drop the asset is worth 150. After repaying the 100 debt there remain 50, before interest: a 50% loss on your money.

An exercise uses 100 of own money plus a loan of 100 to buy an asset worth 200. A 10% fall leaves an asset worth 180. Subtracting the debt of 100 leaves equity of 80: a 20% loss before interest and costs. The debt does not disappear when the asset falls. This explains the mechanism only; the exercise does not suggest borrowing to invest.

Explain the example in your own words and check the calculation.

Check your understanding

In the example, what is the loss on equity before interest?

When the investment falls, the debt…

Full lesson