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How to Calculate Leverage


How to Calculate Leverage</a>

The ability to use borrowed money is a necessary skill of a successful businessman.

The loan allows you to expand the enterprise and start a new business.

But to get borrowed money you need to have a reserve in case of force majeure situations.

How to calculate the leverage?



In the theory of economics, leverage is definedThe ratio of the amount of borrowed funds to the amount available to the borrower. Thus, if a person comes to the bank with a guarantee for 100 thousand dollars, and takes a loan for a million, the leverage is 1 to 10.


The use of leverage allowsRepeatedly increase its profits through accurate forecasts, analysis of the market's conjecture. So, if analysts can predict with high accuracy the change in the exchange rate of one currency relative to another, their available funds do not fully increase the amount of their savings due to a currency transaction.


Leverage is particularly often used inCurrency transactions, in the Forex markets and trading floors. The intermediary (the guarantor of the transaction) allows traders to use a large number of borrowed funds - the leverage can reach 1: 1000. This means that a thousand dollars will allow us to use a million in the transaction. In most cases, the guarantor does not take any chances - in case of losing the trader (if his forecast does not coincide with the reality), the guarantor will simply take away the "bet" - a thousand dollars or any amount that is the "support" of the leverage.


Any insider may raise the leverageInformation proving the success of the forecast, as well as additional guarantees, caused by the reputation of the borrower. Thus, any US bank is more likely to give a "higher" leverage to an entrepreneur from Germany than from a developing African country. The fact is that business in Europe has great guarantees from the state, the German economy itself is an additional guarantor of payment. It turns out that the risks affect the leverage - the more security, the larger the shoulder itself.


To obtain a financial loan or loan inBank for the conduct of your own business, provide a detailed business plan. It is advisable to get the guarantees of businessmen known to you. These guarantees will increase the leverage itself.

How to Calculate Leverage Was last modified: May 21st, 2017 By Nytryevr
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