Leverage multiplies outcomes: financing part of an investment with borrowed money raises the return on your own equity when things go well — and deepens losses when they do not.
A 10% asset gain on a 2× leveraged position is roughly a 20% equity gain before interest; a 10% loss doubles the same way. Borrowing costs eat into the amplified return.
The calculator ignores margin calls — in practice, lenders can force you to sell at the worst moment, which is the real danger of leverage.
The asymmetry is the part the multiplier hides. A 2× position needs a 50% fall to be wiped out, but recovering from a 50% loss requires a 100% gain — so leverage does not simply scale outcomes, it makes the losing path structurally harder to come back from than the winning one was to reach.
Borrowing costs run whether or not the position moves. At 6% financing, a 2× position starts each year roughly 6% of the borrowed amount behind, which means a flat market is a losing one and the strategy needs a positive return simply to break even.
Daily-rebalanced leveraged funds behave differently again. Because they reset exposure each day, a volatile market erodes them even when the underlying ends where it started — which makes them instruments for short holding periods rather than a cheap way to hold a leveraged position for years.
Frequently asked questions
How does leverage amplify returns?
Your equity return is roughly the asset return times the leverage factor, minus borrowing costs. At 2×, a 10% asset gain becomes ~20% on equity before interest — and a 10% loss doubles the same way.
What is a margin call?
When losses shrink your equity below the lender's maintenance threshold, you must add cash or the position is sold — often at the worst possible moment. This is the practical danger the arithmetic hides.
Can leverage wipe out my investment?
Yes. At 2× leverage, a 50% asset decline erases your equity entirely; at 5×, a 20% decline does. Higher leverage narrows the margin for error proportionally.