Interest payments for leveraged positions
"I think to some extent you may be confusing the terms margin and leverage. From Investopedia Two concepts that are important to traders are margin and leverage. Margin is a loan extended by your broker that allows you to leverage the funds and securities in your account to enter larger trades. In order to use margin, you must open and be approved for a margin account. The loan is collateralized by the securities and cash in your margin account. The borrowed money doesn't come free, however; it has to be paid back with interest. If you are a day trader or scalper this may not be a concern; but if you are a swing trader, you can expect to pay between 5 and 10% interest on the borrowed money, or margin. Going hand-in-hand with margin is leverage; you use margin to create leverage. Leverage is the increased buying power that is available to margin account holders.  Essentially, leverage allows you to pay less than full price for a trade, giving you the ability to enter larger positions than would be possible with your account funds alone. Leverage is expressed as a ratio. A 2:1 leverage, for example, means that you would be able to hold a position that is twice the value of your trading account. If you had $25,000 in your trading account with 2:1 leverage, you would be able to purchase $50,000 worth of stock. Margin refers to essentially buying with borrowed money.  This must be paid back, with interest.  You also may have a ""margin call"" forcing you to liquidate assets if you go beyond your margin limits. Leverage can be achieved in a number of ways when investing, one of which is investing with a margin account."
If you are calculating simple ROI, the answer is straightforward math.  See This Answer for some examples, but yes, with more leverage you will always see better ROI on a property IF you can maintain a positive cash flow.  The most complete answer is to factor in your total risk. That high ROI of a leveraged property is far more volatile and sensitive to any unexpected expenses. Additionally, a loss of equity in the property (or an upside-down mortgage) will further impact your long term position. To put this more simply (as noted in the comments below), your losses will be amplified. You cannot say a leveraged property will always give you a better ROI because you cannot predict your losses. "For ""smaller trades"", I'm not sure you can beat FXCM.com, a large, dedicated FX trading shop with extremely tight spreads, and a ""Micro"" account that you can open for as little as $25(US). Their ""main"" offering has a minimum account size of $2k (US), but recommends an account  size of $10k or more. But they also have a ""micro"" account, which can be opened for as little as $25, with a $500 or higher recommended size. I haven't used them personally, but they're well known in the discount FX space.   One strong positive indicator, in my opinion, is that they sell an online FX training course for $19.99.  Why is that positive?  It means that their margins on your activity are small, and they're not trying to get you ""hooked"".  If that were not the case, they'd give the course away, since they'd be able to afford to, and they would expect to make so much of your subsequent activity.   They do have some free online materials, too, but not the video stuff. Another plus is that they encourage you to use less leverage than they allow.  This does potentially serve their interests, by getting more of your deposits with them, but a lot of FX shops advertise the leverage to appeal to users' hope to make more faster, which isn't a great sign, in my opinion. Note that the micro account has no human support; you can only get support via email. On the other hand, the cost to test them out is close to nil; you can literally open an account for $25." Generally not, however some brokers may allow it. My previous CFD Broker - CMC Markets, used to allow you to adjust the leverage from the maximum allowed for that stock (say 5%) to 100% of your own money before you place a trade. So obviously if you set it at 100% you pay no interest on holding open long positions overnight. If you can't find a broker that allows this (as I don't think there would be too many around), you can always trade within your account size. For example, if you have an account size of $20,000 then you only take out trades that have a face value up to the $20,000. When you become more experienced and confident you can increase this to 2 or 3 time your account size. Maybe, if you are just starting out, you should first open a virtual account to test your strategies out and get used to using leverage. You should put together a trading plan with position sizing and risk management before starting real trading, and you can test these in your virtual trading before putting real money on the table. Also, if you want to avoid leverage when first starting out, you could always start trading the underlying without any leverage, but you should still have a trading plan in place first. No.    Net profit is calculated after taxes. Loan interest is an expense, so it will result in the company paying less taxes (it acts as a tax shield), so net profit should still be positive. How much will depend on tax and interest rate.    Only the portion of the $1.000.000 that correspond to interest is an expense. Principal payments are not. "The federal funds rate is one of the risk-free short-term rates in the economy. We often think of fixed income securities as paying this rate plus some premia associated with risk. For a treasury security, we can think this way: (interest rate) = (fed funds rate) + (term premium) The term premium is a bit extra the bond pays because if you hold a long term bond, you are exposed to interest rate risk, which is the risk that rates will generally rise after you buy, making your bond worth less.  The relation is more complex if people have expectations of future rate moves, but this is the general idea.  Anyway, generally speaking, longer term bonds are exposed to more interest rate risk, so they pay more, on average. For a corporate bond, we think this way: (interest rate) = (fed funds rate) + (term premium) + (default premium) where the default premium is some extra that the bond must pay to compensate the holder for default risk, which is the risk that the bond defaults or loses value as the company's prospects fall.  You can see that corporate and government bonds are affected the same way (approximately, this is all hand-waving) by changes in the fed funds rate. Now, that all refers to the rates on new bonds.  After a bond is issued, its value falls if rates rise because new bonds are relatively more attractive.  Its value rises if rates on new bonds falls.  So if there is an unexpected rise in the fed funds rate and you are holding a bond, you will be sad, especially if it is a long term bond (doesn't matter if it's corporate or government).  Ask yourself, though, whether an increase in fed funds will be unexpected at this point.  If the increase was expected, it will already be priced in.  Are you more of an expert than the folks on wall-street at predicting interest rate changes?  If not, it might not make sense to make decisions based on your belief about where rates are going.  Just saying. Brick points out that treasuries are tax advantaged.  That is, you don't have to pay state income tax on them (but you do pay federal). If you live in a state where this is true, this may matter to you a little bit. They also pay unnaturally little because they are convenient for use as a cash substitute in transactions and margining (""convenience yield"").  In general, treasuries just don't pay much.  Young folk like you tend to buy corporate bonds instead, so they can make money on the default and term premia." Trick question dude. Can't be done. Sorry to tell you. I've been hit with this. Credit card companies do not make money on these customers. Why does Amex have an annual fee on all cards and an abnormally large transaction fee for merchants? Because they don't allow you to carry a balance (On traditional cards). Meaning they don't make money on interest, like the customers in question here. Say you buy a bond that currently costs $950, and matures in one year, at $1000 face value. It has one coupon ($50 interest payment) left. The coupon, $50, is 50/950 or 5.26%, but you get the face value, $1000, for an additional $50 return. This is why the yield to maturity is higher than current yield. If the maturity were in two years, the coupons still provide 5.26%, and the extra 1000/950 is another 5.26% over 2 years, or (approx) 2.6%/yr compounded, for a total YTM of 7.86%. This is a back-of envelope calculation, the real way to calculate is with a finance calculator. Entering PV (present value) FV (future value) PMT (coupon payment(s)) and N (number of periods). With no calculator or spreadsheet, my estimate will be pretty close. "Question - Why does Renn Tech limit capital from outside investors while also leveraging their positions 4-5X ? Wouldn't they rather gain more in fees than pay interest on the leverage?  Quote: ""The investment paid off. Today the equities group accounts for the majority of Medallion’s profits, primarily using derivatives and leverage of four to five times its capital, according to documents filed with the U.S. Department of Labor. 4""  https://www.bloomberg.com/news/articles/2016-11-21/how-renaissance-s-medallion-fund-became-finance-s-blackest-box"