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Leverage in long-term investing is a tool for adjusting portfolio exposure over years rather than days, but it amplifies both gains and losses at the same rate. Experienced investors who control risk can use modest leverage to express stronger conviction in positions they already believe in. Those who cannot manage drawdowns will find that leverage punishes weak decisions faster than any other approach.
While most traders think of leverage as a short-term tool for day trading, it can also be applied in longer-term positions to fine-tune exposure, always with strict risk limits and clear downside scenarios. This guide covers the core principles of long-term leverage investing, from how much borrowed capital to use, to the best products for multi-year holds, to structuring a portfolio that can survive a downturn. The Leverage.Trading education series provides additional depth on these topics.
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For investors who already understand spot investing, risk management, and how drawdowns work, this guide focuses on sizing leverage conservatively so that a portfolio can survive shocks and still express a thesis. Used carefully, moderate leverage can tilt a solid long-term process, but it will punish weak decisions just as fast.
Leverage amplifies losses at the same rate it amplifies gains. A 30% market drawdown becomes a 90% portfolio loss at 3x leverage. Leveraged products also introduce volatility decay, fee drag, and liquidation risk that unleveraged portfolios never face. Before using any leveraged product for long-term investing, understand that borrowed exposure creates risks that compound over time. The strategies discussed in this article are not suitable for all investors.
To be leveraged in a long-term investment means using borrowed funds to increase position size, which changes both the speed and size of potential gains and losses. This idea builds on the same principles as leverage in trading, where added buying power amplifies both gains and potential losses over time.
This can be done either by borrowing money from a bank or directly from a crypto exchange that offers high leverage.
Opening positions that are bigger than what the current account balance allows for means the investment is leveraged. Access to leveraged products has become much wider and many retail platforms now offer them, which makes it simple to start using leverage but much harder to stay in control of the risk.
The usual reason investors increase their buying power is to express a stronger view in assets they already believe in, like stocks, indices, commodities, or some funds, knowing that this also increases the impact of being wrong.
Investors who combine leverage with strong stock selection can see very different outcomes from those who stay unleveraged, but at ratios like 1:10 even a normal market swing can turn into a brutal drawdown, so most long-term investors keep their effective leverage much lower.
However, this does not come without added risks. Boosting investment exposure with borrowed funds also runs the risk of losing money faster than normal, and poor stock picking can lead to getting liquidated.
A leveraged investment is any investment in any asset class where borrowed funds are used to increase buying power. For example, a stock can be a leveraged investment if there is access to more capital either from a bank loan or through a stock exchange that offers leverage.
Today there are many instruments that let retail investors take on more exposure with the same amount of capital, and one of the most commonly used in long-term portfolios is the leveraged ETF. The reason why ETFs have grown in popularity as a margin-traded product is due to the accessibility and the low cost offered.
Here is a list of asset classes and investment products that are used in combination with leverage:
These products all operate slightly differently which makes some of them better suited for investors who have a longer outlook on the market and some of them suit investors who are looking for returns in the medium term. Scroll down on the page to learn more about how these products work.
Many investors like the idea of growing a small account into something much larger in a short time, but doing that safely is rare and usually requires years of experience in stock selection and risk management.
For an average market participant, adding leverage does not magically fix performance. It simply makes both good and bad decisions hit the account harder. If the process is weak, leverage will expose that very quickly.
A useful approach is to track break-even points using tools like the average cost stock calculator, which helps investors understand how sensitive a position is to price moves and how much room exists before a drawdown becomes unacceptable.
The decision on whether to borrow money to invest in stocks is personal, but the table below lists some common reasons for and against it. Reading both columns can help clarify which approach fits a given risk tolerance.
| Yes | No |
| Medium to high-risk tolerance | Preference to avoid extra risks |
| Understanding that using leverage means the full amount at risk can be lost, and accepting that possibility before starting | Unclear on how to control a leveraged position in the market |
| Comfortable with increased fees and commission | Concern about getting liquidated |
| Previous experience in structuring a portfolio | Unclear on how these products work |
| Preference to pay as few commissions and fees as possible |
These are guidelines, not a definitive test for everyone. Some investors may have little experience with these products but sufficient knowledge from previous stock investing to proceed carefully.
Leveraged products carry different risk profiles. ETFs (2-3x) experience volatility decay over time, meaning they can lose value even when the underlying index ends flat. Certificates (up to 10x) approach the risk levels of active trading. Derivatives (up to 100x) can liquidate retail investors within hours. The products below are listed for educational purposes, not as recommendations.
Today there are various products that let investors increase their exposure with added purchasing power, each with very different risk and fee profiles. Depending on time frame and risk tolerance, these instruments are widely available through many brokers and exchanges, but “cheap to trade” does not mean “low risk,” especially when leverage is built in.
Whenever borrowed money enters the mix there is an interest to be paid to the broker, much like the same way interest is paid to a bank on a mortgage.
This interest payment is called the overnight fee, or the management fee, and is one way for brokers to make money on leverage.
Below is a list of some of the most popular products for investors. Taking time to learn the differences can help identify a product suited to a particular style of investing.
Portfolio structuring with leverage requires understanding maximum tolerable drawdown BEFORE entering positions. A leveraged portfolio that drops 50% needs a 100% gain to recover. Most experienced long-term leverage users keep effective ratios below 1:3 specifically to survive the drawdowns that occur in every market cycle.
There are different approaches to structuring a margin-traded portfolio, but the main focus is typically longevity and long-term success.
Chasing quick gains in an investment portfolio with increased buying power carries significant risk. One principle many disciplined investors follow: the lower the ratio, the higher the chance of survival during drawdowns.
Many disciplined investors who use long-term leverage keep their effective ratios in the 1:1.5 to 1:3 range. That level of exposure still changes outcomes in a meaningful way, but keeps full wipeout levels further away than the extreme ratios advertised on trading platforms.
Here is how disciplined and experienced investors typically structure a portfolio that focuses on risk.
The first step is deciding how much money can be invested in the portfolio. The amount chosen is typically an amount that could be lost entirely if the market suddenly collapses (which is a possibility). Keep in mind that re-investing in the portfolio monthly or whenever the economic situation improves is always an option.
Depending on personal risk tolerance and capital, different markets and products are available. The examples above show which kinds of products and asset classes might suit different investors.
For those who already know which asset class to invest in, the process is more straightforward. For those not yet comfortable with leveraged investing, spending more time researching each product, the overall risk profile, and asset class is worth considering before proceeding.
The next step is choosing a stock exchange or an investment platform for structuring the portfolio. Checking with local exchanges, online banks, or traditional banks for trustworthy solutions is a common approach. Regulated, reputable brokers governed by local authorities are the standard choice. Unregulated platforms carry additional counterparty risk.
Once capital, products, and a reputable exchange or broker are in place, the next step is balancing the portfolio so that the swings that come with leverage can be tolerated without losing sleep every time the market drops.
A mix of index exposure and individual stocks is a common structure in long-term portfolios. Adding modest leverage on top of that can make the equity curve move more than the underlying market, both in rallies and in drawdowns. Below is a table showing three different ways to structure a portfolio from a risk perspective.
| Low risk | Medium risk | High risk |
| 60% Index funds 20% Blue chip stocks 20% Low leveraged ETFs | 20% Index funds 40% Blue chip stocks 20% Medium cap stocks 20% Medium Leveraged ETFs | 50% Medium cap stocks 50% High leveraged ETFs |
Investors often wonder how leverage changes the returns in an investment portfolio, and the basic math is straightforward even if the real-world risk is not. Consider an example where investor Joe invests in stocks without margin, or 1x leverage ratio, and his brother Jeff invests with leverage.
Both brothers will invest in the same stock and they will both start with $2000 with the only difference being that Jeff will use a 1:3 ratio in his portfolio. Both brothers will invest in the Tesla stock which will make a 25% gain in one year. Here is how the different portfolios react to this increase.
| Joe 1:1 | Jeff 1:3 | |
| $2000 + 25% gain | +$500 | +$1500 |
During this year of investing in Tesla, Joe made a profit of +$500 while Jeff made a profit of +$1500. But how does this work and how is it calculated? The calculation below shows exactly how leverage boosts investment profits.
| Joe: $2000 + 25% gain $2000 × 0.25 = $500 | Jeff: $2000 × 3 = $6000 $6000 + 25% gain $6000 × 0.25 = $1500 |
The simple explanation is that Jeff made 3 times his money due to the 1:3 leverage ratio he used.
The same calculation that tripled Jeff’s gains would triple his losses. If Tesla fell 25% instead of rising, the math reverses completely. Joe (1:1) would lose $500, leaving a portfolio of $1,500. Jeff (1:3) would lose $1,500, leaving a portfolio of just $500. At higher leverage or larger drawdowns, Jeff faces liquidation while Joe simply holds through the decline. A 35% drawdown at 3x leverage would exceed 100% of the original investment, triggering forced liquidation.
In a falling market the same math works in reverse. A moderate drawdown in the unleveraged account can turn into a painful or even account-killing loss when leverage is stacked on top. The table below shows the downside scenario:
| Joe 1:1 | Jeff 1:3 | |
| $2000 – 25% loss | -$500 Portfolio: $1,500 | -$1500 Portfolio: $500 |
Jeff’s 3x leverage meant his $2,000 investment was exposed to a $6,000 position. When the stock dropped 25%, his actual dollar loss was $1,500 (25% of $6,000), leaving him with only $500 of his original capital. Joe lost the same percentage but only $500 in absolute terms, preserving $1,500 to recover from. This illustrates why most long-term leverage users keep ratios conservative.
| Pros | Cons |
| More flexible exposure sizing for experienced investors | Risk of large losses |
| Lets investors express a stronger view without tying up as much cash | Can be very stressful during drawdowns |
| Can help a well-tested strategy make better use of capital in strong trends | Risk of total liquidation |
| Can be integrated into longer-term plans where trade frequency is lower | Higher fees (buy/sell + management) |
| Can improve outcomes in a strong bull market if risk is managed well | Many brokers are misleading |
It can be one tool in a long-term portfolio for experienced investors who already manage risk well, but it is not necessary and it increases the speed and size of both gains and losses even at low ratios.
Many cautious long-term investors who use leverage at all stay roughly in the 1:1.5 to 1:3 range. Anything higher than that starts to behave more like trading than investing.
Leverage increases the size of outcomes. If the process is robust and deep drawdowns can be handled, it can improve results. If the process is weak, it will usually speed up losses and blow ups.
It may be worth exploring only for those who already have a proven, risk-controlled approach and are comfortable seeing the account swing more on the downside as well as the upside. For many investors, staying unleveraged is the simpler and safer path.
When investing in a 3x leveraged stock, buying power increases by 3 times. For example, if capital is $1000 and the investment is in a 3x leveraged stock, the new buying power will be $3000.
Investments lose money faster when margin is added to the mix. Keeping an eye on the margin capital in the investment account helps avoid liquidation.
Leverage in long-term investing is a tool for adjusting exposure, not a shortcut to higher returns. The investors who use it successfully tend to share a few characteristics: they keep ratios conservative (typically 1:1.5 to 1:3), they understand that losses magnify at the same rate as gains, and they structure their portfolios to survive the drawdowns that occur in every market cycle.
The math that triples gains also triples losses. A 35% market decline at 3x leverage exceeds the original investment entirely. This is why experienced leveraged investors focus on survival first and returns second. For those without a proven, risk-controlled investment process, staying unleveraged remains the simpler and safer approach.
This article is published under Leverage.Trading’s Risk-First Education Framework, an independent learning system built to help traders quantify and manage risk before trading.
