In the context of leverage, what is the effect of higher risks?

The effect of higher risks in the context of leverage indicates the potential for increased investment returns. Leverage amplifies both potential gains and potential losses because it involves borrowing funds to invest. When an investor uses leverage, they are using debt to amplify the amount of capital they can invest. If the investment performs well, the returns can be significantly higher because the investor is working with a larger base of capital than they could have without leverage.

Thus, while the risks involved are indeed higher—since leverage can lead to larger losses if investments do not perform as expected—the upside potential increases as well. This is why heightened risk associated with leverage is often viewed in the context of the potential for greater returns, making it an attractive strategy for investors who are willing to accept that risk.