Leverage in the stock market refers to the use of borrowed funds to increase oneís potential return on investment. It allows traders and investors to control a larger position with a relatively smaller amount of capital. By using leverage, market participants can amplify both gains and losses, making it a powerful yet risky financial tool. In India, leverage is commonly used in derivatives trading such as futures and options, as well as in margin trading facilities provided by brokers under SEBI guidelines.

In simple terms, leverage is expressed as a ratio ó for example, 1:5 leverage means an investor can take a position worth ?5 lakh by putting in only ?1 lakh of their own capital. The remaining ?4 lakh is borrowed from the broker. While this can magnify profits when the market moves favorably, it also increases exposure to losses when prices move against the position. Hence, understanding how leverage works is crucial before using it in trading or investing.

Under SEBI regulations, brokers must adhere to margin requirements and risk management frameworks to protect investors from excessive losses. SEBI periodically revises leverage norms to maintain market stability and prevent speculation-driven volatility. Traders should always assess their risk tolerance, position size, and stop-loss levels when trading with leverage.

In essence, leverage can be a double-edged sword. It offers the opportunity to earn higher returns with limited capital but can also lead to substantial losses if not used responsibly. For long-term investors, a prudent approach involves using minimal or no leverage, while active traders should ensure disciplined risk management and adhere strictly to regulatory and margin guidelines.