Using financial leverage allows investors to potentially increase their returns by borrowing money to make investments. This can be especially beneficial when the investor believes that the investment has a high probability of increasing in value. Financial leverage can also allow investors to make larger investments than they may otherwise be able to afford, potentially diversifying their portfolio and reducing risk. However, it's important to carefully consider the risks and potential rewards of using financial leverage before making any investment decisions.

Using financial leverage can be beneficial in certain circumstances because it allows an investor to potentially increase their returns by using borrowed money to make investments. This can be especially appealing when the investor believes that the investment has a high probability of increasing in value.

For example, let's say an investor has $100,000 to invest in a particular stock and they expect the stock to increase in value by 10% over the next year. If the investor uses financial leverage and borrows $100,000 to make the investment, their total investment would be $200,000. If the stock does increase in value by 10%, the investor would make a return of $20,000 on their original $100,000 investment, for a total return of 20%. This is a higher return than the investor would have earned if they had only invested their own money.

Another potential benefit of using financial leverage is that it allows an investor to make larger investments than they might otherwise be able to afford. This can allow the investor to diversify their portfolio and potentially reduce their risk.

Another potential benefit of using financial leverage is that it allows an investor to potentially increase their returns on a relatively small initial investment. For example, if an investor has a small amount of money to invest, they may be limited in the types of investments they can make and the returns they can expect to earn. By using financial leverage, the investor can potentially increase the size of their investment and potentially increase their returns.

Additionally, financial leverage can also be used to hedge against potential losses in other investments. For example, an investor may use financial leverage to buy a put option on a particular stock, which gives them the right to sell the stock at a predetermined price. If the stock decreases in value, the investor can exercise the put option and sell the stock at the predetermined price, potentially realizing a profit.

Note- This is not financial advice as I am not a finance advisor. However if you have any general questions about my blog post feel free to reach out.