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How to reason about leverage in terms of elasticity

Return of an investment for a given period is by definition: $$r = \frac{P}{W_0} - 1$$ where $P$ is the price of the investment at the end of the period, and $W_0$ is the initial investment. I want ...
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183 views

Why use leverage when it does not improve the risk/reward ratio? [closed]

Leverage will increase gains when things go right but will also increase losses when things go wrong. Mathematically speaking, it does not change the risk/reward ratio (or does it?). Since ...
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1answer
129 views

Measuring and proxies for leverage in the financial system

It can be argued that the leverage - reflected by how much collateral people or firms need to put down to borrow and might lose if they fail to pay the loan back - used in the financial system is one ...
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3answers
222 views

Leveraged and inverse leveraged ETFs - what is the exact defintion?

I just had a quick look at the daily returns for a few pairs of leveraged ETFs - it appears that the percent daily returns do not match perfectly. For instance, looking at FAS/FAZ, the returns for the ...
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1answer
1k views

What is the “leverage effect” for stocks?

I've read the so-called "leverage-effect" for stocks models the fact that if a company is leveraged, its volatility should increase as the stock price moves lower and closer to the level of debt. Can ...
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320 views

Calculating portfolio VaR for (custom) leveraged products

I have been searching online for a few days regarding how to calculate portfolio VaR for a portfolio consisting of leveraged products - but so far, I have not been able to come up with anything ...
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0answers
146 views

what is a typical way forex brokerages can provide cheap leverage for their customers?

I'm not very well read in the area of high finance but I'm curious how forex brokerages are able to provide the backing for leverage that they can provide to customers. Is it possible to do this ...
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1answer
807 views

What does leverage cost?

Let's say I've developed a strategy that always outperforms the S&P-500, let call it the "magic strategy". Now I should be golden. All I need is to always have the S&P shorted with the same ...
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214 views

What procedure do leveraged ETFs use to limit losses?

I've skimmed through more than one ETF prospectus trying to find the procedure for clamping losses at the limits of an ETF, and so far, no help. Has anyone found a description of the "clamping" ...
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799 views

How to calculate compound returns of leveraged ETFs?

Forewarning: this is a complete newbie question :-) I am starting to learn about ETFs by trying to do the numbers. When learning about the compounding effect in leveraged ETFs, I wanted to simulate ...