Advantages of leveraged investment:
1, which may increase the return on capital. Investors can increase the return on capital by increasing capital leverage, such as investing in futures. Because futures trading adopts the leveraged nature of the margin system, the same amount of funds can be traded, and the potential for earning income will be higher, which may bring higher yields.
2. It can accelerate the realization of investment goals. Leveraged investment can help investors achieve their investment goals quickly and improve the efficiency of capital use. For example, buying long-term assets such as real estate and automobiles takes a long time to accumulate enough funds without leverage. Through leveraged investment, it is possible to achieve the goal faster.
3. Improve the flexibility of investment. Leveraged investment can help investors allocate funds more flexibly, for example, by trading financial derivatives such as margin trading, futures and options to realize asset allocation.
Disadvantages of leveraged investment:
1. Increasing investment risk requires greater risk tolerance. The biggest disadvantage of leveraged investment is that it magnifies the investment risk. Because leveraged investment itself is traded through loan funds or margin system, once the market situation is not good or contrary to investors' judgment, investors will face greater risks. If leveraged investment is not well controlled, it is easy to lose money or even explode.
2. Increase the investment cost. Leveraged investment may need to pay interest costs or more transaction costs, which may reduce investors' income. For example, the interest rate of funds borrowed by leveraged investment is very high, and investors may not be able to earn enough profits to cover these interest expenses.
3. Increase the financial pressure. Leveraged investment may bring financial pressure to investors. If the borrowed funds cannot be invested correctly or fail, investors will not be able to repay on time, and the capital chain will break, resulting in debt default or their own credit will be affected.