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A leveraged portfolio includes some amount of equity and some securities that were purchased with borrowed money. Using leverage to invest can be risky as the securities may result in a loss, resulting in the investor being liable to bear the loss and repay the borrowed amount along with the interest.

One of the common sources of leverage is buying on margin. Through this method, investors can get a loan from a financial institution and use the leveraged amount along with their cash to purchase more financial securities. This form of investing can help investors gain potential returns if the investments outperform the cost of the loan. However, it may magnify potential losses on the investment as well. Hence, an investor should have the expertise, risk understanding, certain amount of risk tolerance and the capability to monitor the trade carefully.