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The use of borrowed money or financial instruments to amplify potential returns (and losses) on an investment.
Leverage works both ways: it magnifies gains when things go well and amplifies losses when they do not. If you invest $50,000 of your own money plus $50,000 of borrowed money (2:1 leverage) and the investment rises 10%, you earn $10,000 on your $50,000 (a 20% return). But if it falls 10%, you lose 20% of your equity. Margin accounts, mortgages, and leveraged ETFs all employ leverage. Excessive leverage was a primary cause of the 2008 financial crisis, when institutions were leveraged 30:1 or more. For individual investors, moderate leverage (like a mortgage) can be productive, but high leverage in trading accounts is one of the fastest paths to large losses.