Meadow's points are great, but they jump into the middle. systems with goals need the following dynamic and vigilant components to get what they want:
- actuators that have an effect on the environment the system wants to regulate
- sensors that measure specific environmental status, critical to the entire functioning of the system ["feedback"]
- goal(s) which represents a desired state which comprises something that can be compared [see below]
- comparator which takes sensor input and calculates a difference between current state and desired state, and which results in an action as needed to move conditions toward the desired state.
now, if we're grooving on "leverage points", we need a much more complex model of the system under scrutiny than that, and we need an ability to understand the relationships-in-action such that we can judge whether an intervention can have a big effect. but in any event, the points of intervention can be understood in terms of these 4 components of a closed-loop system. [yes i am assuming that the system has closed loops.]
but i recommend caution [a] in imagining we can know in advance what the effects will be in a complex system and [b] sweeping statements such as "changes in everything".
Just like dominos toppling over in a cascading sequence, leverage points in systems work the same way. Each domino may be exposed to other ones falling (its level of exposure) and it may influence other dominos to fall as well (its level of influence). Those with high levels of influence and low levels of exposure are LEVERAGE POINTS.
Remember, every system is an interconnected set of things that serve a purpose. So finding just the right domino to start toppling the most dominos is an example of using a leverage point in a system.
I don’t know the “text book” answer, but from my work, I have found that the points where employees are forced to circumvent the system to get things done are a good place to start.
A system will continue to grow and evolve and propel itself forward. If we are fortunate, the trajectories will align with missions and goals, yet be agile enough to accommodate change. If there is a kink in the pipeline, a new vein will form to continue momentum.
Given this analogy, I propose that systems form organically and these new veins are the best leverage points.
Why? Because they indicate there is a problem
I don’t know the “text book” answer, but from my work, I have found that the points where employees are forced to circumvent the system to get things done are a good place to start.
A system will continue to grow and evolve and propel itself forward. If we are fortunate, the trajectories will align with missions and goals, yet be agile enough to accommodate change. If there is a kink in the pipeline, a new vein will form to continue momentum.
Given this analogy, I propose that systems form organically and these new veins are the best leverage points.
Why? Because they indicate there is a problem somewhere close and this helps us to know where to look; problems are not always visible and sometimes the things we think are visible problems are really symptoms of a larger issue.
And, because the system created this vein, there is already momentum (or a stoppage if that was the organic solution) that can be “leveraged” by relatively small but precise corrections.
Imagine trying to change the course of a river, it is easier and less intrusive to go with the natural flow.
Great question. Firstly, let’s explain leverage for the layman.
Leverage is what traders call ‘margin’. We use margin, which is borrowed money, when we want to leverage our positions more than our cash will allow. We borrow money from the brokerage. The cost to borrow money is only 10% per year so it can be worth it if we use margin on winning trades. When we are wrong about our trades (loosing tra
Great question. Firstly, let’s explain leverage for the layman.
Leverage is what traders call ‘margin’. We use margin, which is borrowed money, when we want to leverage our positions more than our cash will allow. We borrow money from the brokerage. The cost to borrow money is only 10% per year so it can be worth it if we use margin on winning trades. When we are wrong about our trades (loosing trades), margin becomes the subtle shovel pouring dirt upon our financial graves. Ouch!
When we put up, say, $5,000 cash, we can easily buy $10,000 worth of stock. TD Ameritrade allows 200% margin which allows up to $15,000 stock on only $5,000 cash. I’m going to teach you to use only 25% margin in the example below. I’m teaching you to be safe.
So now the question comes — when do you use and avoid using margin?
Experienced traders know margin is a special tool. We don’t use it all the time. Special tools are used for special things, in this case — a winning trade in the making.
But how do you know you are going to have a winning trade? We do have precursors to winning trades. Signs will show and confirmations will be made - if you know what to look for.
Let’s first establish that a successful trader will need about 70% or higher accuracy in trading to be successful. That means 7 to 3 wins to losses, or higher. If he or she scores less than that, the law of diminishing returns and bid/ask comes in to play to drain the account to oblivion. Beginning traders think they can survive with a 50/50 ratio. This is a novice misunderstanding.
So precursors do signal us and confirm our winning trades as they happen. So let the games begin:
1. We select our stock: Choose the very best, no dog shit. Look at revenue, market cap and volume.
Ahh, a refreshingly familiar stock for me. Let’s choose Starbucks. We will trade this, yes?
2: Study the chart: let’s look at a month chart
Can we see the peaks and valleys? Going back 30 days, we identify movements of about 1 to 2 points. Left to right: 60–59–60–58–59–57 (we are at March 24th now), 58-and across and drops down to 56 April 1st. Now we come up. We bottomed out. 57.75–59- and moving toward 60. Can you follow? We can see our resistance is at 60 and support at 55.63 on this chart.
3: Buy the dip: As you can see on the chart, any dip of about 1 or 2 points would have worked here. We wait patiently for a 1 - 2 point dip - then buy!
4: Successful Trade: lets say we got in on any of the dips above. As you can see it starts climbing out and going up right after. Then it hovers for a while before dropping back down into the next dip. These trades are about 1–3 days in between intervals. Can you see? We know the movements are 1–2 pints so we don’t want to be greedy. Let’s aim to make .75 cents.
“Take small gains and walk away”- Godric
So here we put our standard 400 share buy order on Starbucks (SBUX). $400 *60 = $24,000 invested. We start with all cash. As you can see every dip of 1–2 points resulted in an upswing afterwords. Don’t you love high volume stocks? Investors come in and buy the dip - but we can’t get greedy. As you can also see, the stock did drop back down after each upswing. So make small moves. Aim to earn .75 cents - no more. Play it safe. Can you do it? Can you trade this stock if your life depended on it?
.75 cents *400 shares brings in profit of $300. If you divide $300/$24,000 = 1.25% return - a great return for a 3 day trade. We establish winning trades here of .75 cents on 400 shares or $300.
5: Apply the special tool, ‘Margin’( leverage): We selected our good stock. We studied the chart. We waited patiently for the dips. We entered the trade and had success. We are comfortable with this position. We are now ready to use margin. Let’s buy in now 500 shares; 400 cash and 100 margin. That brings our profit goal from $300 to $375. That’s 25% margin. Plenty. If you go 600 shares; 400 c...
It applies to so many different aspects of life. In a really basic sense. It is the use of a small power to achieve a far bigger effect. In the physical world, that is enabling one man to lift something, otherwise impossible.
Financially, using a small asset to gain a much bigger one.
As I said there are so many potential avenues for its use. I’m sure people will have written books on the subject.
As a boy, my dad told me about it. Since then, I have made use of it frequently. In all senses of the effect.
Leverage is borrowing money to increase an investment position. Conceptually, you bet that you will earn more on your investment than the interest paid on the borrowed money.
An example with stocks. You open a brokerage account with $10,000 and buy 100 shares of a large company stock at $100 per share. You can use the margin account with your brokerage which allows you to borrow money using your
Leverage is borrowing money to increase an investment position. Conceptually, you bet that you will earn more on your investment than the interest paid on the borrowed money.
An example with stocks. You open a brokerage account with $10,000 and buy 100 shares of a large company stock at $100 per share. You can use the margin account with your brokerage which allows you to borrow money using your stock as collateral. In this case you borrow $5000 at 5%. You now have $15,000 and 150 shares invested in that stock.
The stock then rises to $110 a share. Your position is now valued at 150 shares at $110 a share for a total of $16,500. You pay back the $5,000 and since you only borrowed the money for 30 days, let's say the interest paid is $20. Your net position is now $11,480 on an investment of $10,000 for a return of 14.8% while the stock just went up 10%.
Similarly, with a house purchase if you bought a $1 million dollar house with 20% down or $200,000 and a $800,000 loan. If the house goes up 5% or $50,00...
Leverage is the use of somebody else’s resource to achieve the outcome you want.
- Leverage other people’s momey. This can be done either through borrowing or getting investors. It can even mean using your customer’s money if you take deposits and pre-orders.
- Leverage other people’s network. If you’re not a great netwoker and you need a network to grow your business, get a partner who is, or go network with other great networkers.
- Leverage other people’s time. Hiring employees or contractors is exchanging your money for their time.
- Leveraging other people’s assets. Outsourcing certain functions that
Leverage is the use of somebody else’s resource to achieve the outcome you want.
- Leverage other people’s momey. This can be done either through borrowing or getting investors. It can even mean using your customer’s money if you take deposits and pre-orders.
- Leverage other people’s network. If you’re not a great netwoker and you need a network to grow your business, get a partner who is, or go network with other great networkers.
- Leverage other people’s time. Hiring employees or contractors is exchanging your money for their time.
- Leveraging other people’s assets. Outsourcing certain functions that are capital-intensive will keep your own business asset light. Examples include shipping, warehousing and cloud computing.
Uhh... I'm going to go with no, because you make a million decisions, including especially negative decisions (ie, passive choices to not do anything) throughout the course of life, and any of them could potentially be turning points, but that doesn't make them leverage points.
A leverage point is a point at which you can apply deliberate effort to get a disproportionately large result. The case you describe is not so much a leverage point as just random chance-- ie, the lack of ability to predict that it would a difference makes it pretty low-leverage.
Understanding the operational risk and profitability dynamics of a business requires knowing how to calculate the Degree of Operating Leverage (DOL). Here's why it matters.
- Understanding the Cost Structure: DOL calculates how sensitive an organization's operating income (EBIT) is to variations in sales. A company with a high DOL has a higher percentage of fixed costs than variable costs, which means that even slight variations in sales can have a big impact on operating income.
- Risk Assessment: DOL assists managers and investors in understanding how changes in sales will affect profitability by
Understanding the operational risk and profitability dynamics of a business requires knowing how to calculate the Degree of Operating Leverage (DOL). Here's why it matters.
- Understanding the Cost Structure: DOL calculates how sensitive an organization's operating income (EBIT) is to variations in sales. A company with a high DOL has a higher percentage of fixed costs than variable costs, which means that even slight variations in sales can have a big impact on operating income.
- Risk Assessment: DOL assists managers and investors in understanding how changes in sales will affect profitability by measuring operational risk. Businesses with high DOL are more vulnerable to downturns because they must continue to pay for fixed expenses even if sales fall.
- Decision-Making: Management can decide on pricing, production levels, and investment strategies with knowledge of the DOL. It directs strategic planning by assessing the possible effects of sales fluctuations on profitability.
- Benchmarking: Investors might find organizations with greater or lower financial risk profiles using DOL to compare businesses in the same industry. When deciding which investments to make, this comparative study is crucial.
- Forecasting Profitability: Forecasting future profitability based on anticipated sales growth is made easier with an understanding of DOL. Growth-oriented investors find a company with high operating leverage appealing since it may boost profits dramatically with increased sales.
I hope this answers well.
Happy Learning.
This is actually quite a compelling question, as it gets to the heart of a primary reason behind what makes a successful entrepreneur, successful, and an unsuccessful entrepreneur, unsuccessful. The savvy entrepreneur has learned that to obtain success that extends beyond the limits of what he is in and of himself is capable of, he must use the magical power of leverage. That is, he will leverage people to offset the 24/7/365 principal and he will leverage his capital by wisely borrowing with the intent of earning a return on more money than that which he currently has available to invest.
This is actually quite a compelling question, as it gets to the heart of a primary reason behind what makes a successful entrepreneur, successful, and an unsuccessful entrepreneur, unsuccessful. The savvy entrepreneur has learned that to obtain success that extends beyond the limits of what he is in and of himself is capable of, he must use the magical power of leverage. That is, he will leverage people to offset the 24/7/365 principal and he will leverage his capital by wisely borrowing with the intent of earning a return on more money than that which he currently has available to invest.
What the successful entrepreneur gets that the unsuccessful one usually doesn't is that he can compound his two greatest assets with the use of leverage. By way of hiring, partnering, joint venturing, etc., he can utilize the time of other people to extend beyond the confines of his most precious asset, which is time. No longer bound by just 24 hours in a day, 7 days in a week and 365 days in a year, he can accelerate his output thereby increasing his value to whatever marketplace he serves.
Similarly, he will borrow money from third parties (i.e. financial institutions) with the goal of increasing the amount he can invest and in turn increasing the amount he can get as a return. The most common example of this is in real estate, where it is very typical to see even a non-entrepreneurial
common joe using leverage by putting down 10% or 20% or 30% on an asset and borrow the remainder from the bank.
The math on a transaction like this can give you some insight into how freaking powerful leveraging money his and how successful entrepreneurs earn astronomical returns.
Let's say that two common Joe's buy homes that are exactly the same in terms of location, size, etc., and each pay $100,000 for their respective properties. Let's also say that in one year, both homes are now worth $110,00 thanks to market appreciation.
The only difference in these two Joe's is that one paid all cash ($100,000) for his home and the put down $10k and borrowed $90k. The first Joe certainly is doing good, as he has a 100% safe investment that yielded a 10% return his first year. The second Joe should feel ecstatic and then some though, as he has a more risky investment for sure, but the reward for doing so is a staggering 100% return, as he has earned $10k with a mere $10k initial investment.
Multiply those results out over the hundreds of investments entrepreneurs make day in and day out and you'll see why leverage can be his best friend (if and when used correctly, as leverage can amplify losses in a similar manner). Entrepreneurship is all about risk and return however, and very few good ones will deny the secret wealth building powers of leveraging time and money.
in futures and options, you cant buy just one share. you must buy one conntract. this contract size is defined by exchange. if futures contract size in money is rs 8 lakhs, then if one share is 2000 rupees we have contract size in units as 8lakhs/2000 = 400 shares.
EXCHANGE FIXES THE CONTRACT SIZE THE NUMBER OF SHARES.we cant change it.
exchange gives you a concession. YOU NEED NOT PAY ALL THE MONEY. JUST PAY A PART.
instead of paying 8 lakhs you can buy one contract at 10% or 20% of the 8 laks say 80000 or rs 160000rs
if one share price goes up by 10 rupees, because of contract size the profit ge
in futures and options, you cant buy just one share. you must buy one conntract. this contract size is defined by exchange. if futures contract size in money is rs 8 lakhs, then if one share is 2000 rupees we have contract size in units as 8lakhs/2000 = 400 shares.
EXCHANGE FIXES THE CONTRACT SIZE THE NUMBER OF SHARES.we cant change it.
exchange gives you a concession. YOU NEED NOT PAY ALL THE MONEY. JUST PAY A PART.
instead of paying 8 lakhs you can buy one contract at 10% or 20% of the 8 laks say 80000 or rs 160000rs
if one share price goes up by 10 rupees, because of contract size the profit gets multipiled by 400. profit is 4000
similarly if loss comes
if a share price drops by 20 rupees then your loss is 400 times 20 say 8000
the lverage is the multiplication of profit or loss by the numbr of shares in one contract.
in fno you have to buy or sell one contract.
this contract has expiry date after which it doesnt exist at all.
if you bought a contract of sbin of august27, and you forgot about it and wakeon 28 august, then all the money you invested in that futures is disappeared.it becomes zero.
you must sell it on or before 27 th the expiry date,.
you cant say —”i had fever so i missed selling can i sell on 28th august.”
if you dont know a b c d of risk management,then you should not trade futures and options.
you can lose all the money.
LEVERAGE IS A DOUBLED SWORD.
ONE CAN CUT AN APPLE OR HIS OWN THROAT.
This lady says it best:
You have at least four kinds of leverage:
- Labour leverage
You have 24 hours a day.
You cannot, therefore, work 25 hours a day.
You can buy hundreds of even thousands of hours of other people’s time though.
Historically, this was the biggest form of leverage. You couldn’t create a big firm with few people historically.
2. Capital
If you have capital, you can get capital from the banks, in the form of mortgages, or other individuals, who are more likely to trust those with more resources.
Even if you don’t have loads of capital, you can invest in
This lady says it best:
You have at least four kinds of leverage:
- Labour leverage
You have 24 hours a day.
You cannot, therefore, work 25 hours a day.
You can buy hundreds of even thousands of hours of other people’s time though.
Historically, this was the biggest form of leverage. You couldn’t create a big firm with few people historically.
2. Capital
If you have capital, you can get capital from the banks, in the form of mortgages, or other individuals, who are more likely to trust those with more resources.
Even if you don’t have loads of capital, you can invest into other firms via stocks and shares, and take advantage of their ability to use capital leverage.
3. Code
With the second kind of leverage, the banks were often the biggest players.
JP Morgan, and others like him, were some of the richest people over a hundred years ago.
When the internet came out, suddenly having access to code could become a form of leverage.
4. Audience and technology
Attention and audience equals monetization opportunities.
If somebody has 100,000 followers, and each of those 100,000 followers has an average of 100 followers, they have access to a potential audience of 10,000,000 every post, or more if it goes viral.
Good paid adverts online are also scalable in a way that traditional means aren’t. For example, if a real estate company makes $20,000 from every $10,000 spent online, they can just increase the amount spent on adverts.
Online networking is also much easier than in-person networking, as you can’t meet millions in person.
Basically, working hard is important, but we can’t get big alone.
Leverage is a technique that intensifies investor profits or losses. It's most commonly used to depict the use of borrowed money but it can also describe the use of fixed assets .
More than required leverage can be bad, but there's no hard and fast rule as to how much is too much. Leverage can be a powerful medium when used responsibly. Investors and companies use leverage to broaden, hedge and speculate, but the aggressive one can easily get in over their heads by losing money or going into bankruptcy .
Leverage Ratio – This ratio focus on the long-term solvency of the company with regards to h
Leverage is a technique that intensifies investor profits or losses. It's most commonly used to depict the use of borrowed money but it can also describe the use of fixed assets .
More than required leverage can be bad, but there's no hard and fast rule as to how much is too much. Leverage can be a powerful medium when used responsibly. Investors and companies use leverage to broaden, hedge and speculate, but the aggressive one can easily get in over their heads by losing money or going into bankruptcy .
Leverage Ratio – This ratio focus on the long-term solvency of the company with regards to how much capital comes in the form of debt or analysing the ability of the company to meet its financial obligation. It measures long-term stability and structure of the firm.
Types of Leverage Ratio
1) Capital Structure Ratio
I. EQUITY RATIO
II. DEBT RATIO
III. DEBT TO EQUITY RATIO .
2) Coverage Ratio
I. DEBT SERVICE COVERAGE RATIO
II. INTEREST COVERAGE RATIO
III. CAPITAL GEARING RATIO
The vast majority of everyday investors trade stocks and other securities using the cash they have. If they want to buy a stock, they need to have enough money in their account to pay for those shares.
One of the drawbacks of investing only with cash is that your gains are limited by your financial resources. Even if you find an amazing investment opportunity that returns 100%, if you only have $500 to invest, you’ll only earn a $500 profit.
Many professional traders borrow money to invest or employ strategies that allow them to invest more cash than they have on hand. This is called investing w
The vast majority of everyday investors trade stocks and other securities using the cash they have. If they want to buy a stock, they need to have enough money in their account to pay for those shares.
One of the drawbacks of investing only with cash is that your gains are limited by your financial resources. Even if you find an amazing investment opportunity that returns 100%, if you only have $500 to invest, you’ll only earn a $500 profit.
Many professional traders borrow money to invest or employ strategies that allow them to invest more cash than they have on hand. This is called investing with leverage, or leverage trading. This lets them greatly increase their buying power and potential returns, as well as their risk.
- Trading with leverage involves borrowing money to invest in the stock market
- Leverage increases your risk for loss, to potentially unlimited loss from bad investments
- Your broker may sell investments on your behalf if their values drop below a set amount
How Does Leverage Trading Work?
Leverage trading, in the most basic sense, is any type of trading that involves borrowing money or otherwise increasing the number of shares involved in a trade beyond the number of shares you could afford when paying in cash.
It’s not a bad thing to trade on leverage if you know what you’re doing and understand the risks. But if that’s not the case, it’s extremely risky and you could potentially lose a lot more than you can afford to.
Here are the different ways you can use leverage to trade in stocks:
Trading on Margin
A simple example is trading on margin. Margin is money you borrow from your broker to buy a security, using other securities in your brokerage account as collateral.
For example, you have $10,000 in your brokerage account and want to invest in Company XYZ. XYZ is currently trading at $50 per share.
If you purchased shares with just the cash you have, you could afford 200 shares. If you decide to use margin, borrowing $10,000 from your broker, you could buy 400 shares instead. This amplifies your potential gains and losses.
If the share price rises to $60, you’d earn a profit of $2,000 or 20% if you invested with cash. If you used margin, you’d earn $4,000 or 40% of the cash you invested.
However, if the price dropped to $40, you’d lose $2,000 with a cash investment and $4,000 if you invested using margin. Remember: You have to pay back the money you borrow from your brokerage.
You’d lose all of the money you invested if you used margin and the stock price of XYZ fell to $25. You’d owe money to the broker even after selling your shares if the price fell below $25.
Trading Derivatives
Options are another method of trading with leverage. One options contract typically involves 100 shares of the underlying security. Buying an options contract lets you gain control over 100 shares for far less than the cost of buying 100 shares of a company. This means that small changes in the price of the underlying security may cause large changes in the value of the option.
Imagine you think that XYZ is going to lose value instead of gain value. Instead of buying shares using margin, you might decide to sell call options on the stock, setting a strike price of $40. Call options give the option holder the right, but not the obligation, to buy shares from the option seller at the set price.
If the price of XYZ remains above $40, the option holder will likely exercise the option, forcing you to buy shares on the open market to sell those shares to them for $40 each. One contract covers 100 shares, which means that if XYZ Is trading at $41 when the option is exercised, you’ll lose $100. If it’s at $50, you’ll lose $1,000.
Leveraged ETFs
There are also ETFs that use leverage to try to affect how they perform compared to the market.
There are also inverse ETFs that aim to deliver the opposite performance to the performance of the benchmark index. A 3x inverse ETF aims to triple the opposite performance of the underlying index. So if the underlying index is negative, the 3x inverse ETF such as ProShares UltraShort (QQQ) ETF would return a positive 3x return.
The Risks With Leverage Trading
One of the primary risks of leverage trading is the fact that it amplifies your potential losses, potentially to the point where you can lose more money than you have available.
Margin Risks and Margin Call
For example, if you use margin to double your purchasing power, you double all of your gains and losses. That means that if a stock you buy loses more than 50% of its value, you’ll lose more than 100% of the cash you had available to invest.
Another risk is that your brokerage could initiate a margin call. If your account’s value falls below a set threshold compared to the money you’ve borrowed, your broker may demand you deposit additional funds. This can happen because your broker worries about your ability to repay your debt if your investments continue to lose value.
Potential for Unlimited Loss With Options
Some leverage trading strategies, particularly options, have potentially infinite risk.
If you sell a call option and the option seller exercises it, you need to buy 100 shares of the stock to sell to the person who holds the call. If the strike price is $50 and the market value for the stock is $60, you’ll lose $1,000. If the market value is $70, you’ll lose $2,000. If the market value of a share is $1,000, you’ll lose $95,000.
The higher the market value of the share rises, the greater your losses will be. Because there theoretically is no limit to how high a share’s price can rise, there is no limit to how much money you can lose. Imagine each share wound up trading for $1 million or $10 million. You’d lose hundreds of millions or billions of dollars.
While this scenario isn’t likely, because there’s no limit to how high a stock can rise, it’s important to understand that the risk of these kinds of options can be immense.
Leveraged ETFs Not for the Long Haul
Even buying shares in leveraged ETFs has risks. Most funds “reset” daily, meaning they only aim to match the one-day performance of their index. Over the long run, their returns can significantly diverge from the overall returns of the benchmark.
For example, according to the SEC, between December 1, 2008, and April 30, 2009, an index rose 8%. Meanwhile, a 3x leveraged ETF tracking the index fell 53%, while a 3x inverse ETF tracking the index declined by 90%
Is leverage trading dangerous?
Leverage trading can be dangerous because it amplifies your potential investment losses. In some cases, it’s even possible to lose more money than you have available to invest.
Is leverage trading good?
Leverage trading can be good because it lets investors with less cash increase their buying power, which can increase their returns from successful investments.
Do you have to pay back leverage?
Yes. If you borrow money to invest, such as by trading on margin, you will have to pay it back to your broker. Many brokers also charge interest on margin loans, increasing the cost of investing with leverage.
I have very little background in this area but I will report on some things I have noticed. "Stickiness" seems important. Web designers seem to want you to stay on their site as long as possible. Youtube and Amazon do a great job at this by recommending other videos or products you might like based upon your search history. Facebook is super-sticky. Another website that does a great job at this is theCHIVE. Similarly to Youtube and Amazon, they get members of their target audience to spend lots of time on their site. The Chive is not porn, but does have lots of scantily clad women. Also, the C
I have very little background in this area but I will report on some things I have noticed. "Stickiness" seems important. Web designers seem to want you to stay on their site as long as possible. Youtube and Amazon do a great job at this by recommending other videos or products you might like based upon your search history. Facebook is super-sticky. Another website that does a great job at this is theCHIVE. Similarly to Youtube and Amazon, they get members of their target audience to spend lots of time on their site. The Chive is not porn, but does have lots of scantily clad women. Also, the Chive builds a sense of "community" by highlighting causes such as injured soldiers or sick kids and taking donations for them. Furthermore, the Chive builds on that sense of community by calling frequent visitors "Chivers." All of this seems to enhance the "stickiness" of the site.
So, high leverage points for websites seem to be those components that enhance "stickiness".
In finance leverage is a strategy that companies use to increase assets, cash flows and returns though it can also magnify losses. There are two main types of leverage financial and operating. To increase financial leverage a firm may borrow capital through issuing fixed-income securities or by borrowing money directly from a lender.
Operating leverage can also be used to magnify cash flows and returns, and can be attained through increasing revenues or profit margins. Both methods are carry risk, of insolvency, but can be very beneficial to a business.
Financial Leverage Ratio
The financial leve
In finance leverage is a strategy that companies use to increase assets, cash flows and returns though it can also magnify losses. There are two main types of leverage financial and operating. To increase financial leverage a firm may borrow capital through issuing fixed-income securities or by borrowing money directly from a lender.
Operating leverage can also be used to magnify cash flows and returns, and can be attained through increasing revenues or profit margins. Both methods are carry risk, of insolvency, but can be very beneficial to a business.
Financial Leverage Ratio
The financial leverage ratio is an indicator of how much debt a company is using to finance its assets. A high ratio means the firm is highly levered (using a large amount of debt to finance its assets). A low ratio indicates the opposite (using a low amount of debt to finance its assets).
formula-
Financial Leverage Ratio = Average Of Assets/Average of Equity
Example
Let’s find Companies X Ltd. and Y Ltd. Which company has a higher financial leverage ratio?
X Ltd.
- Total Assets = 1,100
- Equity = 800
- Financial Leverage Ratio =1,100 / 800 = 1.375x
Y Ltd.
- Total Assets = 1,050
- Equity = 650
- Financial Leverage Ratio = 1,050 / 650 = 1.615x
Company Y Ltd.reports a higher financial leverage ratio. This indicates that the company is financing a higher portion of its assets by using debt.
Here is how entrepreneurs use leverage to develop and expand your sales network and gain leverage!
Porter Gale said, “Your network is your net worth”. We have not come across anything as true as this. Growing in the field of sales is extremely important since it helps you establish yourself in the longer run. For this type of growth, finding new avenues is extremely important. These avenues help yo
Here is how entrepreneurs use leverage to develop and expand your sales network and gain leverage!
Porter Gale said, “Your network is your net worth”. We have not come across anything as true as this. Growing in the field of sales is extremely important since it helps you establish yourself in the longer run. For this type of growth, finding new avenues is extremely important. These avenues help you acquire new customers and increase your customer base thus increasing sales.
> 1) Visible and connected to the market - Staying visible means making sure you are active in the market. Promoting your company in the market is one of the easier ways to stay visible. Posters, Ads are also a viable option to stay connected. This helps build the image of your brand. It also helps in spreading information about your brand.
2) Feedback - Customer feedback is the best way of knowing where you lack. It helps you understand the needs and wants of your customers. It also helps you upgrade your products so you can cater better to your customers.
3) Customer Testimonials - Customer testimonials are experiences of your customers with your company. This helps potential clients understand your company ad also arrive at a decision. These testimonials act as a true representation of your company since they are honest reviews by your existing clients.
4) Referrals - Referrals are of two t...
To answer your question, I would like to use reference of Chaiwala’s Tea Stall business with real life example of Nestle to explain what is operating leverage and how to calculate it.
So let’s begin -
Upvote if the answer was helpful to you. Comment your queries & I would be happy to respond.
If you are interested in learning basics of fundamental analysis & stock market investing, then you might want to check out iTribe app for free courses. For more info, one can check out the link in my bio.
To answer your question, I would like to use reference of Chaiwala’s Tea Stall business with real life example of Nestle to explain what is operating leverage and how to calculate it.
So let’s begin -
Upvote if the answer was helpful to you. Comment your queries & I would be happy to respond.
If you are interested in learning basics of fundamental analysis & stock market investing, then you might want to check out iTribe app for free courses. For more info, one can check out the link in my bio.
Leverage in trading means using borrowed money to make bigger trades than you could with just your own funds. It can help you earn more if things go well, but it can also make your losses bigger if things don’t. So, use leverage carefully and start small until you get the hang of it.
Leverage is borrowing and virtually all businesses do this to one extent or another. It is done to provide funds so that the company can grow. Like anything else, too much of a good thing can be bad and cause solvency problems.
For a great discussion of this and other financial matters refer to the five-star rated Amazon bestseller 60 Minute CFO: Bridging the Gap Between Business Owner, Banker and CPA.
“leverage” is having the ability to control a large amount of money using none or very little of your own money and borrowing the rest.
For example, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1.
You’re now controlling $100,000 with $1,000.
This is also called 1:1 leverage.
What is margin?
Margin is the amount of money needed as a “good faith deposit” to open a position with your broker.
Margin is usually expressed as a percentage of the full amount of the position. For example, most forex brokers say th
“leverage” is having the ability to control a large amount of money using none or very little of your own money and borrowing the rest.
For example, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1.
You’re now controlling $100,000 with $1,000.
This is also called 1:1 leverage.
What is margin?
Margin is the amount of money needed as a “good faith deposit” to open a position with your broker.
Margin is usually expressed as a percentage of the full amount of the position. For example, most forex brokers say they require 2%, 1%, .5% or .25% margin.
In forex, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1. You’re now controlling $100,000 with $1,000.
If your broker requires a 2% margin, you have a leverage of 50:1.
Based on the margin required by your broker, you can calculate the maximum leverage you can wield with your trading account.
IMPORTANT NOTES
- Leverage, which is the use of borrowed money to invest, is very common in forex trading.
- By borrowing money from a broker, investors can trade larger positions in a currency.
- However, leverage is a double-edged sword, meaning it can also magnify losses.
- Many brokers require a percentage of a trade to be held in cash as collateral, and that requirement can be higher for certain currencies.
Forex leverage calculator
A forex leverage calculator helps traders determine how much capital they need to open a new position, as well as manage their trades. It also helps them to avoid margin calls by determining the optimal position size.
The formula for forex leverage is:
L = A / E
where L is leverage, E is the margin amount (equity) and A is the asset amount.
You can also start with the margin amount and apply a leverage ratio to determine the position size. In this instance, the formula would be A = E.L. Therefore, multiplying the margin amount by the leverage ratio will give the asset size of a trader’s position.
The initial margin required by each broker can vary, depending on the size of the trade. If an investor buys $100,000 worth of EUR/USD, they might be required to hold $1,000 in the account as margin. In other words, the margin requirement would be 1% or ($1,000 / $100,000).
Summary
While margin is the deposit amount required to open a trade, leverage is capital borrowed from the broker in order to gain exposure to larger trading positions. Therefore, forex trading on margin enables traders to open larger positions with relatively small deposits. It is important to remember that trading on leverage can be risky as losses, as well as profits, are amplified.
Thank you
Simon troy.
In terms of business, leverage means borrowing money for the purchase of inventory, equipment, and other company assets. On using debt a company’s equity is not diluted and also provides other benefits like tax savings and an increase in return on equity and capital. Taking leverage can result in an increase in your return with less amount of investment. It can be calculated in three ways:
- Operating leverage, which refers to the percentage of fixed costs that a company has.
- Financial leverage, which is equal to the total amount of debt with the firm.
- Combined or Total leverage which is cumulative
In terms of business, leverage means borrowing money for the purchase of inventory, equipment, and other company assets. On using debt a company’s equity is not diluted and also provides other benefits like tax savings and an increase in return on equity and capital. Taking leverage can result in an increase in your return with less amount of investment. It can be calculated in three ways:
- Operating leverage, which refers to the percentage of fixed costs that a company has.
- Financial leverage, which is equal to the total amount of debt with the firm.
- Combined or Total leverage which is cumulative of both operating and financial leverage.
Leverage is a concept in both business and investing situations. In business, leverage refers to how a business acquires new assets for startup or expansion. It can be used as a noun, as in, "Leverage is a way to allow a business to expand...." or it can be a verb, as in, "Businesses leverage themselves by getting loans for expansion."
When a business is "leveraged," it means that the business has borrowed money to finance the purchase of assets. Businesses can also use leverage through equity, by raising money from investors.
The concept of leverage in business is related to a principle in phys
Leverage is a concept in both business and investing situations. In business, leverage refers to how a business acquires new assets for startup or expansion. It can be used as a noun, as in, "Leverage is a way to allow a business to expand...." or it can be a verb, as in, "Businesses leverage themselves by getting loans for expansion."
When a business is "leveraged," it means that the business has borrowed money to finance the purchase of assets. Businesses can also use leverage through equity, by raising money from investors.
The concept of leverage in business is related to a principle in physics where it refers to the use of a lever that gives the user a mechanical advantage in moving or lifting objects. Without leverage, such a task might not be accomplished. Leverage involves using capital (assets) usually cash from loans to fund company growth and development in a similar way, through the purchase of assets. Such growth could not be accomplished without the benefit of additional funds gained through leverage.
How Leverage Works—An Example
A small retailer wants to expand into an available space next door in a strip mall. In addition to increased rent, the business will have to buy fixtures, shelves, tables, and other operational necessities. It will also require additional inventory. Most small businesses don't have sufficient cash on hand to cover all these expenditures, so the retailer applies for a business loan. This loan is leverage. It allows the business to do what it couldn't do without the additional funds.
It means to borrow money.
If you have $1 M, and the stock price will rise by 5% the next month.
No leverage; you invest $1 M, and you make $50,000.
Leverage of 10; you borrow $10 M, you invest all the money into the very stock, and you make $550,000. Suppose you need to pay the lender back at an annual interest rate of 10%, and you need the money for a month, the interest cost would be around $83,333. So you make $466,667. with leverage.
Now, the down side of using leverage is that if the stock price doesn't go as you anticipated, you lose more money.
In this case, if the stock price falls by 5%.
N
It means to borrow money.
If you have $1 M, and the stock price will rise by 5% the next month.
No leverage; you invest $1 M, and you make $50,000.
Leverage of 10; you borrow $10 M, you invest all the money into the very stock, and you make $550,000. Suppose you need to pay the lender back at an annual interest rate of 10%, and you need the money for a month, the interest cost would be around $83,333. So you make $466,667. with leverage.
Now, the down side of using leverage is that if the stock price doesn't go as you anticipated, you lose more money.
In this case, if the stock price falls by 5%.
No leverage; you lose $50,000.
Leverage of 10; you lose $550,000. before interest costs. and it sums up to a loss of $ 633,333. after paying your interests.
Meaning of leverage
The term leverage refers to an increased means of accomplishing some purpose. Leverage is used to lifting heavy objects, which may not be otherwise possible. In the financial point of view, leverage refers to furnish the ability to use fixed cost assets or funds to increase the return to its shareholders.
Definition of leverage
James Horne has defined leverage as, “the employment of an asset or fund for which the firm pays a fixed cost or fixed return. Types of Leverage Leverage can be classified into three major headings according to the nature of the finance mix of the compa
Meaning of leverage
The term leverage refers to an increased means of accomplishing some purpose. Leverage is used to lifting heavy objects, which may not be otherwise possible. In the financial point of view, leverage refers to furnish the ability to use fixed cost assets or funds to increase the return to its shareholders.
Definition of leverage
James Horne has defined leverage as, “the employment of an asset or fund for which the firm pays a fixed cost or fixed return. Types of Leverage Leverage can be classified into three major headings according to the nature of the finance mix of the company.
Types of Leverages
- Operating leverage
- Financial leverage
Uses of Operating Leverage
Operating leverage is one of the techniques to measure the impact of changes in sales which lead for change in the profits of the company.
If any change in the sales, it will lead to corresponding changes in profit. Operating leverage helps to identify the position of fixed cost and variable cost.
Operating leverage measures the relationship between the sales and revenue of the company during a particular period.
Operating leverage helps to understand the level of fixed cost which is invested in the operating expenses of business activities.
Operating leverage describes t
Uses of Operating Leverage
Operating leverage is one of the techniques to measure the impact of changes in sales which lead for change in the profits of the company.
If any change in the sales, it will lead to corresponding changes in profit. Operating leverage helps to identify the position of fixed cost and variable cost.
Operating leverage measures the relationship between the sales and revenue of the company during a particular period.
Operating leverage helps to understand the level of fixed cost which is invested in the operating expenses of business activities.
Operating leverage describes the over all position of the fixed operating cost.
You should use leverage if you (1) can afford it, and if it is (2) acceptable within your bounds of risk tolerance.
The only way to truly know if it is, is to quantify how much you are willing to lose, and calculate a worst case scenario.
Where it goes wrong most of the times, is that people don’t do this, fuck around with CFDs and (mini) futures, and realize they got hit much harder than expected. If you are leveraged to the max, and your sell order didn’t get hit and all out of a sudden, you find yourself drowning, there is no way back.
they don’t, Banks have somethings far better, it’s called Fractional Lending.
the bank has the obligation to secure 10% of all lent equity.
as a result of this:
when you deposit 100$ on your savings account.
the bank can legally give credits for 1000$
essentially “creating” 900$ out of your 100$ in the process.
leverage is just dynamic credit, but fractional banking is actually creating money.
The Leverage Effect
Equity owners can reap most of the rewards through financial leverage when their company does well. But they may suffer a downside when the company does poorly. What happens if earnings are so low that it cannot cover inter- est payments? Interest must be paid no matter how low the earnings. How can money be obtained with which to pay interest when earnings are insufficient?
It can be obtained in three ways:
■ By reducing the assets in some way, such as using working capital needed for operations or selling buildings or equipment.
■ By taking on more debt obligations.
■ By issuing
The Leverage Effect
Equity owners can reap most of the rewards through financial leverage when their company does well. But they may suffer a downside when the company does poorly. What happens if earnings are so low that it cannot cover inter- est payments? Interest must be paid no matter how low the earnings. How can money be obtained with which to pay interest when earnings are insufficient?
It can be obtained in three ways:
■ By reducing the assets in some way, such as using working capital needed for operations or selling buildings or equipment.
■ By taking on more debt obligations.
■ By issuing more shares of stock.
Thanks
Hello Reader!
what is operating leverage?
In simple terms, Operating leverage tells us what percentage of the business total cost are constituted by Fixed and variable cost. It also enables us to understand how efficiently businesses are using fixed cost.
Formula:
Operating leverage= Contribution/EBIT.
Contribution = Sales - Variable cost.
EBIT= Contribution - Fixed cost.
Uses of operating leverage:
1. Operating leverage tells the financial health of a company.
2. Operating leverage helps businesses to take corrective action relating to Fixed cost usage.
Happy Reading:)
Leverage comes from capital. The Latin word “lev” means light in weight, and is the root in the English word “lever”. Levers are used to apply a great amount of force over a short distance, and similarly “leverage” is used to employ a great amount of capital for extra returns over a short period of time.
Why a short period of time, you ask? Well, typically leverage is employed with capital that is not yours (think borrowing money to invest and paying the debt with returns). Maybe the analogy breaks down, maybe it doesn’t. But just as a lever is used to perform strenuous tasks by those who do no
Leverage comes from capital. The Latin word “lev” means light in weight, and is the root in the English word “lever”. Levers are used to apply a great amount of force over a short distance, and similarly “leverage” is used to employ a great amount of capital for extra returns over a short period of time.
Why a short period of time, you ask? Well, typically leverage is employed with capital that is not yours (think borrowing money to invest and paying the debt with returns). Maybe the analogy breaks down, maybe it doesn’t. But just as a lever is used to perform strenuous tasks by those who do not possess the adequate strength for such tasks, leverage is employed by companies/individuals/entities to pursue investment opportunities by those who do not possess adequate liquidity (cash/liquid assets) to capitalize on such opportunities.