The financial strategy of using borrowed capital to acquire an asset, risking that the future profits will outweigh the cost of borrowing. Named after the concept of a lever in physics, whereby a small input force is amplified into a larger output force, financial leverage increases scale and amplifies smaller amounts of capital into potentially larger profits, multiplying gains. However, losses are also multiplied and thus financial leverage is a risky investment technique available only to large, wealthy investors and firms. Private equity firms and hedge funds are predicated on using high levels of risky financial leverage.

DEFINE: Defines financial leverage as the strategic use of borrowed capital to acquire assets, with gains and losses both amplified.

Andrew deWaard, Derivative Media, loc. 491