{"id":7246,"date":"2025-10-07T02:40:00","date_gmt":"2025-10-07T05:40:00","guid":{"rendered":"https:\/\/elinversordebolsillo.com.ar\/?p=7246"},"modified":"2025-03-14T21:53:13","modified_gmt":"2025-03-15T00:53:13","slug":"24-apalancamiento","status":"publish","type":"post","link":"https:\/\/elinversordebolsillo.com.ar\/en\/24-apalancamiento\/","title":{"rendered":"24 \u2013 Leverage Principles and its Significant Risk"},"content":{"rendered":"

Lesson 24 \u2013 The Best Free Finance Course in History<\/p>\n\n\n\n

In this lesson, we'll talk about the risks of leverage: how it can multiply both profits and losses.<\/em><\/strong><\/p>\n\n\n\n

Course index:<\/p>\n\n\n\n

    \n
  1. Basic Concepts of Money and Personal Finance<\/strong><\/a>
    <\/strong>Introduction to the value of money, the importance of saving, and spending control.<\/li>\n\n\n\n
  2. Budgeting and Financial Planning<\/strong><\/a>
    <\/strong>Create a personal budget, manage income and expenses, and set financial goals.<\/li>\n\n\n\n
  3. Inflation and Purchasing Power<\/strong><\/a>
    <\/strong>Explanation of how inflation affects the value of money over time.<\/li>\n\n\n\n
  4. Interest Rates and Time in Finance<\/strong><\/a>
    <\/strong>Differences between simple and compound interest rates and their importance in investments.<\/li>\n\n\n\n
  5. How to protect your savings. Protect yourself from scams.<\/a>
    How to protect your money from the scams that abound today<\/li>\n\n\n\n
  6. Basic Savings Instruments<\/strong><\/a>
    <\/strong>Explanation of savings accounts, term deposits, and how they work.<\/li>\n\n\n\n
  7. Introduction to the Stock Market<\/strong><\/a>
    <\/strong>Basic concepts of the stock market and its role in the global economy.<\/li>\n\n\n\n
  8. Actions: What They Are and How They Work<\/strong><\/a>
    <\/strong>Explanation of stocks, types (common and preferred), and how to invest in them.<\/li>\n\n\n\n
  9. Bonds: What They Are and How They Work<\/strong><\/a>
    <\/strong>Differences between corporate and government bonds, and their importance in diversification.<\/li>\n\n\n\n
  10. Risk vs. Return on Investments<\/a>
    <\/strong>Concept of risk and how it affects investment choices.<\/li>\n\n\n\n
  11. Diversification and Creation of Basic Portfolios<\/a>
    <\/strong>Basic diversification principles to reduce risk in an investment portfolio.<\/li>\n\n\n\n
  12. What is an ETF and How Does it Work?<\/a>
    <\/strong>Introduction to ETFs (exchange-traded funds) and how they track market indices.<\/li>\n\n\n\n
  13. What is a Mutual Fund?<\/a>
    <\/strong>An explanation of mutual funds and their benefits for beginners.<\/li>\n\n\n\n
  14. Financial education for the family<\/a><\/strong>
    All the information you need to make ends meet.<\/li>\n\n\n\n
  15. Economic Cycle and its Impact on Investments<\/a>
    <\/strong>How the stages of expansion and contraction in the economy affect investments.<\/li>\n\n\n\n
  16. Growth Stocks vs. Value Stocks<\/a>
    Learn about different types of actions and what to expect from each one.<\/li>\n\n\n\n
  17. Fundamental Analysis of Stocks<\/a>
    <\/strong>Explanation of how to analyze a company's value based on its fundamentals.<\/li>\n\n\n\n
  18. Basic Technical Analysis: Charts and Patterns<\/a>
    <\/strong>Introduction to basic technical analysis tools, such as trend lines and candlestick patterns.<\/li>\n\n\n\n
  19. Options: What They Are and How They Work<\/a>
    <\/strong>Basic concepts of call and put options and their uses in investments.<\/li>\n\n\n\n
  20. Futures: What They Are and How They Work<\/a>
    <\/strong>Introduction to futures contracts and their application in investment and speculation.<\/li>\n\n\n\n
  21. Introduction to Cryptocurrencies<\/a>
    <\/strong>What is digital money, how it was created, and the characteristics of Bitcoin and other cryptocurrencies.<\/li>\n\n\n\n
  22. Blockchain and its Importance in Finance<\/a>
    <\/strong>How the technology behind cryptocurrencies works and their applications in finance.<\/li>\n\n\n\n
  23. Risks in Cryptocurrency Trading<\/a>
    <\/strong>Volatility, fraud, and regulations in the cryptocurrency market.<\/li>\n\n\n\n
  24. Leverage Principles and its Risk<\/a>
    <\/strong>What it means to trade with leverage and the associated risks.<\/li>\n\n\n\n
  25. Investor Psychology and Emotion Management<\/a>
    <\/strong>How emotions influence investment decisions and tips for managing them.<\/li>\n\n\n\n
  26. What is Algorithmic Trading<\/a>
    <\/strong>Basic explanation of the use of algorithms to perform operations in the financial market.<\/li>\n\n\n\n
  27. Financial Analysis of Companies<\/a>
    <\/strong>Introduction to basic financial statements and their interpretation for valuing companies.<\/li>\n\n\n\n
  28. Investing in Commodities: Gold, Oil, and Other Goods<\/a>
    <\/strong>How commodity investments work and their role in diversification.<\/li>\n\n\n\n
  29. Advanced Investment Strategies: Hedging and Derivatives<\/a>
    <\/strong>Introduction to strategies for managing risks through financial derivatives.<\/li>\n\n\n\n
  30. Creating and Managing a Complete Portfolio<\/a>
    <\/strong>Practical application of prior knowledge to build and manage a diversified portfolio.<\/li>\n<\/ol>\n\n\n\n
    \"Banner<\/a><\/figure>\n\n\n\n

    <\/p>\n\n\n\n

    <\/p>\n\n\n\n

    Leverage sounds like something for financial geniuses, but it's actually quite simple. It's when you borrow money to invest more than you have.<\/strong>, hoping to win a lot. For example, if you have 2,000 pesos, but they lend you 18,000 more, you invest 20,000. If everything goes well, you make a fortune. But if it goes badly, you lose everything and still owe the money you were given. It's like gambling with a loan that could leave you out on the street.<\/p>\n\n\n\n

    In Argentina, where silver is devalued every day and we're looking for ways to make it work, leverage seems like a way out. With inflation and the dollar continuing to rise, many are tempted to use debt to multiply profits.<\/strong>But be careful, if you don't know how to handle it, you could end up burned out. Let's take it apart step by step, with what the experts say, real-life cases, and even a quote from Archimedes that'll make you think.<\/p>\n\n\n\n

    How does leverage work?<\/h2>\n\n\n\n

    Leverage is like turbocharging your investment. You use debt to amplify what you can put out of pocket<\/strong>Let's imagine you have 5,000 pesos and want to buy cryptocurrency. Without leverage, you buy 5,000 pesos worth of Bitcoin. But if you leverage 10 to 1, you borrow 45,000 pesos and now have 50,000 pesos to invest. If Bitcoin rises by 10%, you earn 5,000 pesos, which is 100% of your initial investment. A dream! But if it falls by 10%, you lose 5,000 pesos and owe the 45,000 pesos you borrowed.<\/p>\n\n\n\n

    Leverage multiplies everything: profits and losses<\/strong>It's like a high-stakes game where you can win big or lose it all in the blink of an eye. In Argentina, with such volatile markets, this can be a double-edged sword if you're inexperienced.<\/p>\n\n\n\n

    Leverage in the stock market: Stock Market Bond<\/h2>\n\n\n\n

    When we talk about stock market guarantees in this case, it's not the same as the guarantee that the CNV requires from agents. Here, we're referring to when an investor borrows money using their stocks or bonds as collateral, or when they lend money to another investor. It's like leaving your car in the garage in exchange for a loan: if you pay, you get it back; if not, they keep it. In Argentina, where the stock market is an option for making money go further, this is widely used, but it comes with its risks and tricks.<\/p>\n\n\n\n

    Think of it as a system where you move money around the market, using what you already have as a backup. It's common on the Buenos Aires Stock Exchange, and it allows you to invest more without taking money out of your pocket. But be careful, if you don't know how to use it, you could end up losing everything. Let's take a step-by-step look at it, with examples and a local twist.<\/p>\n\n\n\n

    How does borrowing money as collateral work?<\/h2>\n\n\n\n

    The idea is simple. You use the stocks or bonds you own as collateral to request a loan. For example, you have 100,000 pesos in YPF shares. A broker or platform lends you, say, 50% of that value (50,000 pesos), using your shares as collateral. With that money, you can buy more shares or invest in something else.<\/p>\n\n\n\n

    The broker gives you the loan because he knows that if you don't pay, he can sell your shares to recover what he lent you. In Argentina, this is done on margin, and the rules depend on the stock market and the risk of the assets. If the shares go up, you earn more; if they go down, you can lose everything and still owe.<\/p>\n\n\n\n

    And lend money with collateral?<\/h2>\n\n\n\n

    You can also be the lender. An investor with plenty of money can lend to another, using the borrower's shares as collateral. For example, you have 200,000 pesos in your principal account and pledge it for 1, 7, or 30 days (the most common terms). Another person pledges their shares as collateral, temporarily keeping your money, and at the end of the term, you collect your money plus interest.<\/p>\n\n\n\n

    The risk is if the borrower doesn't pay, which is extremely rare. If the stock falls in value or the market crashes, the brokerage firm will sell the debtor's assets to return your money.<\/p>\n\n\n\n

    The capacity of stock market instruments<\/h2>\n\n\n\n

    An important concept comes into play here: the margin of a stock market instrument. The margin is the percentage of the value of an asset (such as stocks or bonds) that a broker or lender considers valid for granting you a loan. They won't lend you 100% of the value of your instruments because they're at risk of falling in price. For example, if you have YPF shares valued at 100,000 pesos, the margin could be 80%, so they'll lend you up to 80,000 pesos.<\/p>\n\n\n\n

    The margin depends on the instrument. Shares of large, stable companies (such as YPF or Mercado Libre) have higher margins, say 70% or 80%. Argentine Treasury bonds may have slightly higher margins. Risky instruments, such as shares of smaller companies, have lower margins, such as 40%, because the broker doesn't want to be stuck with something that may be worthless.<\/p>\n\n\n\n

    In Argentina, the loan capacity varies according to the market. With inflation and devaluation, the CNV and brokers adjust these percentages to keep the system from going haywire. If the loan capacity is low, they lend you less, but you're more protected. If it's high, you can borrow more, but the risk of losing increases.<\/p>\n\n\n\n

    \"Tabla
    Table of stock capacities. You can find the complete list on the BYMA website.<\/a><\/figcaption><\/figure>\n\n\n\n

    Advantages of stock guarantee<\/h2>\n\n\n\n

    Borrowing or lending with collateral has its advantages. First, it allows you to invest more without selling what you have. If you have shares in a company you want to keep, you can use them as collateral instead of getting rid of them. Second, you generate income if you lend. Earning interest is like a bonus without having to leave your chair. It's even safer than a fixed-term deposit.<\/p>\n\n\n\n

    Thanks to the margin, you can calculate how much you can borrow. If you know your shares have a margin of 70%, you can better plan your investment. In Argentina, where the peso is losing value, this is a way to take advantage of the stock market without depending on the bank. If you play it right, you can earn more than with a fixed-term deposit.<\/p>\n\n\n\n

    Regulation in Argentina<\/h2>\n\n\n\n

    The CNV regulates this, but it's not as strict as it is with brokers. Brokers have to follow rules for margins and margins, such as how much they can lend based on the value of the assets. In 2023, with high inflation, the CNV adjusted margins to prevent people from going bust.<\/p>\n\n\n\n

    The problem is that not everyone understands the margin call. Many leverage their funds without realizing that the percentage can drop if the market moves, and when the margin call comes, they find themselves with debts they can't pay.<\/p>\n\n\n\n

    Real cases of problems<\/h2>\n\n\n\n

    Leverage with caution and margin has taught hard lessons. In 2020, an investor from Buenos Aires borrowed 300,000 pesos using Petrobras shares as collateral, with a margin of 70%. The price plummeted due to the pandemic, and the value dropped to 150,000. The broker sold, but owed another 150,000 pesos, and had to sell his car to get out.<\/p>\n\n\n\n

    Another case occurred in 2022. A woman from C\u00f3rdoba lent 200,000 pesos to a friend, who invested in shares secured by the 60%. The friend lost everything, and the shares were worth 80,000. She lost 120,000 and cut ties with him. In Argentina, these tragedies are more common than we think.<\/p>\n\n\n\n

    How to start with caution?<\/h2>\n\n\n\n

    If you're tempted to try, start small and with a reliable broker. Platforms like Balanz or Inviu explain how to use margins and collateral. Don't put everything at stake: use only a percentage of your assets as collateral. And always read the terms: know how the collateral affects your loan if the market falls.<\/p>\n\n\n\n

    In Argentina, where the stock market is a challenge, consult with someone who knows. A financial advisor can guide you so you don't make a mistake.<\/p>\n\n\n\n

    Warren Buffett and the three L's<\/h2>\n\n\n\n

    Warren Buffett, the American millionaire who knows a lot about investing, always warns about the dangers of leverage. He quotes his partner and friend, the recently deceased Charlie Munger, who said that there are three ways an intelligent person can ruin themselves: liquor, ladies, and leverage.<\/strong>Let's see what each one means, although Munger clarified that he included the first two for fun because they begin with an L; the real issue is leverage.<\/p>\n\n\n\n