Borrowed Capital


DEFINITION of 'Borrowed Capital'

Funds borrowed from either individuals or institutions. Borrowed capital can be used in a number of ways. Investors use borrowed capital to increase their potential investment returns; this use is known as leverage. The upside of investing with borrowed capital is the potential for greater percentage gains; the downside is the potential loss of someone else's money, which must then be repaid. Another way borrowed capital can be used is by businesses as a loan or debenture.

Also referred to as "loan capital."

BREAKING DOWN 'Borrowed Capital'

Investors commonly use borrowed capital when trading in the forex markets. Critics consider this leveraged trading to be dangerous, while proponents argue that with the proper precautions, such as the placing of stops, investors can achieve their goals faster without taking on too much risk.

People who take out a mortgage to buy a home are also using borrowed capital. In this case, the purpose of borrowing capital is not necessarily to improve potential investment returns, but to make it possible to purchase an expensive asset that is difficult to pay for in one lump sum.

  1. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  2. Broker's Call

    The interest rate charged by banks on loans made to broker-dealers, ...
  3. Margin Account

    A brokerage account in which the broker lends the customer cash ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Remargining

    The process of bringing an account up to minimum equity standards ...
  6. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
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