Risk Management
With some broker accounts, leveraging can greatly amplify returns as well as losses. If your $1000 account is invested in a stock with a 75% leverage ratio, giving you $4000 worth of shares, a 25% fall in the stock price will mean you lose your whole $1000. Any further falls will result in you owing the broker money. It’s a high risk game. A quick tip is to divide 1 by the % that you contribute (e.g. 25% as above), which gives you 4. Any movement in the stock price (e.g. 10%) is amplified 4 times (now 40%) when it comes to working out your return on capital.
