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TeachMeFinance.com - explain leverage leverage -- (1) the use of borrowed money to increase the return on a cash investment. For leverage to be profitable, the rate of return on the investment must be higher than the cost of the borrowed money. (2) the use of a relatively small amount of capital to control a large dollar amount of a commodity or cash instrument by buying on margin. In the futures market, the margin is a good faith performance bond. In the cash market, the margin is an actual down payment. (3) the effect on the earnings per share of the common stock of a company when large sums must be paid for bond interest or preferred stock dividends before earnings are paid to holders of common stock. About the author Mark McCracken Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English". Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.