1. What is a Leveraged Investment Calculator?

Definition: This calculator estimates the profit or loss from a leveraged investment based on the change in asset value and the leverage ratio.

Purpose: It helps investors understand the amplified returns (or losses) that result from using leverage in their investments.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( P \) — Profit or loss (currency)
• \( V_{new} \) — New value of the investment (currency)
• \( V_{old} \) — Original value of the investment (currency)
• \( L \) — Leverage ratio (dimensionless)

Explanation: The difference in value is multiplied by the leverage ratio to show the amplified effect on returns.

3. Importance of Leverage Calculation

Details: Understanding leveraged returns helps investors assess risk-reward ratios and make informed decisions about using borrowed capital.

4. Using the Calculator

Tips: Enter the original and new investment values in USD, and the leverage ratio (default 1 for no leverage). All values must be ≥ 0, with leverage > 0.

5. Frequently Asked Questions (FAQ)

Q1: What does leverage ratio mean?
A: It represents how many times the investment is magnified (e.g., 2:1 leverage means $2 invested for every $1 of capital).

Q2: Can this show losses?
A: Yes, if V_new is less than V_old, the result will be negative, showing amplified losses.

Q3: Does this include interest costs?
A: No, this is a basic calculation that doesn't account for borrowing costs or fees.

Q4: What's a typical leverage ratio?
A: Common ratios range from 2:1 to 10:1 depending on the asset and broker requirements.

Q5: How does leverage affect risk?
A: While it can amplify gains, it also magnifies losses, potentially exceeding the original investment.