Leverage
Definition · Level 0 · Market basics
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Controlling more exposure than your own capital, via borrowed money or derivatives (a $200 call can control $10,000 of stock); measured as position value — for a whole book, gross exposure — ÷ equity, it multiplies gains and losses alike.
Example
$40,000 of stock on $20,000 of equity = 2:1; a 10% drop costs 20% of equity.
Where Tradecraft teaches it
Level 0 · Market basics, in the lesson “Short selling & margin”: How a short really works, and how borrowing against your account amplifies gains, losses and margin calls.
Related terms
- Buy-inA forced purchase that closes your short, typically when the lender recalls the shares and no replacement borrow can be found; executed at market…
- Buying powerHow much you can buy right now given your equity and account type: settled cash in a cash account; in a Reg T margin account, up to 2× excess equity…
- Cash accountA brokerage account where every purchase is paid in full with your own settled money: no borrowing, no short selling, and reusing unsettled sale…
- Days to coverShares sold short ÷ average daily volume: roughly how many days of normal trading it would take all shorts to buy back.
- Hard-to-borrowA stock with scarce lendable supply: short sellers pay high annualized fees (often several percent, in extremes over 100%), may be refused a borrow…
- LocateThe broker's confirmation, required by Reg SHO before a short sale, that it has reasonable grounds to believe the shares can be borrowed and…