Americans are up to their necks in debt according to debt org the total US consumer debt as of 2019
is thirteen point eighty six trillion dollars this comprises of mortgages credit cards auto loans and
student loans consumer debt helps the economy to grow and economic growth means there will
be higher paying jobs which makes it easier for individuals to pay off their loans quicker debt
allows you to get a home pay for your education or your child's and owned a car without having
to save up all that cash first however debt if not effectively managed can be devastating especially
when the economy goes into a downturn as it is now in a recession jobs are lost which makes
it tough to repay loans consequently it goes into default ruining the individuals credit report and
their ability to take further loans in the future even in a strong economy most people tend to take
on too much debt due to financial and discipline unexpected medical bills and other circumstances
consequently a lot of individuals and families struggle financially living paycheck to paycheck
therefore it's no surprise that debt has taken on a negative connotation there's been a lot of
books articles TV shows and resources dedicated to teaching you how to get out and stay out of
debt but debt is not all bad if you learn how to use it properly debt can be a route to wealth the
key word here is leverage a lever helps you to lift a heavy object with relatively small
effort similarly debt can be used as a lever to multiply your monetary returns leverage refers to
using borrowed funds to exponentially increase your returns with leverage you can get profits
which otherwise wouldn't have been possible using just your money however you stand a higher risk of
losing your capital so here are five ways you can leverage debt to make money one margin investing
margin investing allows you to aggressively buy more shares than you could afford you can make
a lot of money if things work out as expected on the other hand when things go south you're risk
losing at all this is how it works if you say you have $10,000 in your brokerage account you
can open a margin account based on your initial investment with a margin account you can only
put up a maximum of 50 percent of the cost of a stock therefore if you intend to purchase stock
worth $20,000 the brokerage where you have the $10,000 will loan you an extra $10,000 to complete
the purchase if the stock price gains you can repay the loan and be left with some profit
on the downside the stock could fall and if it falls below a particular value your brokers will
make a margin call margin calls are demands for additional funds or securities to bring
a margin account up to the minimum maintenance margin if you can't meet up with the required
additional funds or securities your broker may force you to sell assets no matter the market
price to meet the margin call to hedge funds hedge funds or funds that are typically pooled
from high net-worth or institutional investors the fund managers seek high returns with these
funds using unconventional investing strategies one such tactic is the use of leverage to chase
massive gains they engage in margin trading that is leveraging their brokers money to make bigger
investments they also get lines of credit for investing with the hope their gains will exceed
the interest investing with credit lines uses the same principles as margin investing but
this time rather than borrowing from the broker the hedge fund borrows from a third party lender
hedge funds are known for making huge returns with leverage some are known to lever up to ten
times their total assets on the downside if a fund manager miscalculates they can lose all
their investors capital and go out of business 3 leveraged ETFs leveraged ETFs or leveraged
securities that allow investors and traders to amplify their returns by going long or short on
an underlying index benchmark or commodity using borrowed money futures and/or swamps
fund companies led investors multiply returns as well as losses by as much as 300 percent you can
invest in specific bonds indexes commodities or sectors for example the S&P 500 ETF trust takes
the underlying S&P 500 index and supercharges it such that an upward one-time movement will result
in a three-time change in the ETF value however it doesn't always go as planned and the results
aren't guaranteed the leveraged etfs reset every day so if your strategy is to buy and hold your
position will be reduced to nothing due to the way the ETF is set up even if the market
performed remarkably well thus leveraged ETFs are meant for short-term trading investors are drawn
to leveraged ETF because of the potential for extraordinary profits during times of market booms
experienced traders can make unmatched returns with leveraged ETFs the problem with leveraged
ETFs is that they also magnify losses the same way they magnify gains your entire investment can
be wiped out as single trade for short selling short selling is making a bet on the price of a
stock going down rather than up investors borrow shares of stock from their brokers accounts and
sell them at the current market rate their plan is to repurchase those stocks at a lower price
in the future and return the borrowed shares to the owner or lender short sellers hope to profit
from the difference between the proceeds of the short sale and the cost of buying back the shares
this is known as short covering for example if you short sell a hundred shares of a $20 stock
you'll end up with $2,000 in your account if in time the price depreciates to $10 per share you
can cover your position by buying back the 100 shares at $10 which will cost you $1000 with your
position covered you've made a profit of $1,000 from the trade it's the brokers call to decide
if a stock can be shorted since they find the shares to lend to the short selling trader this
is usually automated and the broker will also get back their shares automatically once the short is
covered however short selling call for action the losses are unlimited that is a short seller
can lose far more than his initial investment 5 forex trading compared to stocks forex trading
allows you far greater leverage in some cases you can leverage your account up to 101 what
this means is that for every $100 in your account you'll be able to trade up to $10,000 the forex
market offers such high leverages because the risks involved are more manageable leverage is
a function of risk so if a trade is well-managed the risk is also well-managed which is why they
can offer such high leverages currency trading allows investors to enter a transaction with
borrowed funds the borrowed funds are used to increase the investors trading position
beyond what they would otherwise have as available cash balance they can then potentially turn their
initial small investment into massive amounts instantly conversely an investor can amplify
his losses in the same manner and the higher the leverage you apply on the capital the higher the
risk you'll take on a trader could be cleaned out in minutes so in conclusion debt has taken
a bad rap and for good reasons too many people take on too much debt for the wrong reasons and
end up struggling financially good debt will work in your favor if used effectively despite
all the negativity around debt you can borrow and with the right knowledge in the power of leverage
grow your wealth exponentially thank you guys so much for watching I'll see you in the next one