Leverage in business implies the employment of fixed cost items in anticipation of magnifying returns at high levels of operation. Leverage is a double-edged sword which produces highly favourable results when everything is well and very painful outcome under adverse conditions.
In cryptocurrency, leveraging comes into play in futures trading. This is a highly risky type of trading that could yield high profits if the market goes in your favour as well as high loss if it goes against your prediction. Also, in futures, you can use little margins to trade a larger volume of coins depending on your choice leverage rate e.g: 20X or 100X. In all, leveraging has equal advantages and disadvantages.
More so, in economics "Operating Leverage" is a type of leveraging that shows the extent to which fixed assets and associated fixed costs are utilized in business. A firm's operational costs may be broadly classified as fixed and variable costs. In order to evaluate the implications of heavy fixed asset use, it is necessary to employ the technique of break-even analysis.
Often, a firm is faced with questions such as: how much will changes in volume affect cost and profit? At what point does the firm break even? What is the most efficient level of fixed assets to employ in the firm?
The perceptions of management about the future will determine whether it will follow the path of the leveraged firm or that of the more conservative firm. If the financial manager is apprehensive about economic conditions, the conservative plan may be adopted.
For a growing business under favourable economic conditions, management might maintain a more aggressive, leveraged position. The firm's competitive position within its industry will also be a factor. Does the firm desire to merely maintain stability or to become a market leader?
In all, what is more important is to match an acceptable return with the desired level of risk. Similarly, in futures trading, a trader to control his choice of leverage rate so as to equally manage risk. Greed should not be allowed to come into to avoid being recked.
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