Leverage Simulator

Leverage means borrowing money to invest more than your own capital. For example, with €10,000 and 2x leverage, you control €20,000. If the asset rises 10%, your return is 20% minus borrowing costs. But losses are also amplified — a 50% drop wipes out your entire capital.

A margin call happens when your equity (the value of your position minus what you borrowed) falls below a certain percentage of the total position. The lender asks you to deposit more capital or sell assets to repay the loan. In this simulator, red bars indicate margin call scenarios.

Leverage amplifies losses as well as gains. A 50% drop in a 2x leveraged position means a 100% loss of your capital. You also pay interest on borrowed funds, which increases your break-even point. Leverage is best suited for short-term, high-conviction trades.

Yes, Irish investors can buy leveraged ETFs through brokers like Degiro, Trading 212, or Interactive Brokers. However, most leveraged ETFs use derivatives and rebalance daily, causing decay over longer holding periods. They are generally not suitable for buy-and-hold investors.

Borrowing costs reduce your net return. If you borrow at 5% and the asset returns 8%, your leveraged return is (8% × 2x) - 5% = 11%, compared to 8% without leverage. But if the asset returns 3%, you lose money on leverage despite a positive asset return.

Safe leverage depends on the asset volatility and your time horizon. For low-volatility assets like bonds, 2-3x may be reasonable. For stocks, even 1.5x carries significant risk. Most financial advisors recommend avoiding leverage for long-term retail investors.

With 2x leverage, a 50% drop in the asset means your position loses 100% of its value. Your equity goes to zero. Your lender sells the position, and you lose your entire capital. This is why margin calls exist — to close positions before equity goes negative.

Gains from leveraged investments are subject to Irish CGT at 33%, just like unleveraged gains. You cannot deduct borrowing costs from your CGT calculation. However, interest paid on the loan may be deductible if the investment generates taxable income.

Yes, property investing typically uses leverage through mortgages. A 20% deposit on a property is effectively 5x leverage. Irish mortgage rules limit this to about 4x income, but the principle is the same — leverage amplifies both gains and losses in property values.

Leverage specifically refers to using borrowed money to increase investment exposure. A loan can be for any purpose. Leverage is measured as a ratio (e.g., 2x), while a loan has a specific amount and interest rate. Margin loans are a common way to create leverage.

Longer holding periods increase both potential returns and risk with leverage. You pay interest every year, which compounds. Over 5 years, the cost of borrowing at 5% on a 2x position is significant. Leverage is typically used for shorter-term tactical positions.

The break-even return is the asset return needed for your leveraged return to equal your unleveraged return. With 2x leverage and 5% borrowing cost, the break-even is roughly 5% — below that, leverage hurts your returns. Above 5%, leverage helps.