Leverage risk

Leverage risk is the risk incurred when exposure to the market or an instrument exceeds the invested capital.

The use of forward financial instruments (derivatives) can generate overexposure and thus increase market exposure beyond the invested capital. Consequently, depending on the direction of the operations, the effect of a decline (in the case of buying exposure) or an increase in the underlying derivative (in the case of selling exposure) can be amplified, thereby increasing the loss of the invested capital.