Austin Courtney

The landscape of leverage is evolving away from its original state of amplified returns from simple borrowing of assets. Through a number of different factors leverage has become a tricky investment to navigate, increasing its risk. With the diversification of financial instruments, risk has become increasingly more difficult to assess which makes it harder to understand the underlying exposures. The increasingly complex investment instruments have established more ways to employ leverage. For example, structured products, which are pre-packaged investments that commonly consists of derivatives and underlying assets, offers a customized risk-return profile for its investors. This custom profile makes this financial instrument hard to understand and evaluate future performance. 

Another key factor in the complexity of employing and evaluating leverage has been the advancements in technology. Technological advancements have opened the door to algorithmic trading that helps to execute trades at high speeds. This form of trading is rapidly leveraging position based on the movement of the market by the millisecond. The high speeds algorithmic trading has access to has amplified gains and losses creating higher volatility and complicating risk assessment. Along with algorithmic trading, social trading platforms have been another form of technological advancement that have increased the difficulty of navigating leverage. Platforms allowing beginner investors to copy the trades of successful investors has allowed for easy access to leveraged strategies for those novice traders. These platforms add to leverage complexity by allowing inexperienced investors to take on excessive leverage without the full understanding of how to manage and analyze the risk that comes along with leverage investment opportunities.