Adding leverage increases your risk, but increased risk is one way to possibly gain better returns. There are many ways to gain leverage, from using loans, to options, to futures. I'll explain how to use all of these methods.
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A fundamental question is how much leverage you want to use. You can easily bankrupt yourself, and unfortunately brokerages make this all too easy. I prefer using leverage with a loan to value ratio of 30%, or a leverage ratio of 1.3. For example, if I have $100k cash, I will use that to invest $130k in a diversified portfolio. The key is diversified, because you want to be able to ride out the downswings.
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A fundamental question is how much leverage you want to use. Brokerages make it all too easy to over-leverage. I usually use a leverage ratio between 1.3 - 1.5. For example, if I have $100k cash, I may use that to invest a notional value of $130k in a diversified portfolio.
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People use leverage all of the time for home loans, and it is not unheard of to use a 80% loan to value ratio for a mortgage. For a $500k home, you might put up $100k cash and take a $400k loan. You would likely do this at a reasonable interest rate, and your hope is the value of the home goes up faster than your interest charges. Your home value could fall, leaving you with a mortgage that is underwater, i.e. you owe more than the home is actually worth. All of this can apply to investing as well. Using a 30% LTV for investing seems perfectly reasonable to me.
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People use leverage all of the time for home loans, and it is not unheard of to use a 80% loan to value ratio for a mortgage, or a leverage ratio of 5. For a $500k home, you might put up $100k cash and take a $400k loan. You would likely do this at a reasonable interest rate, and your hope is the value of the home goes up faster than your interest charges. Your home value could fall, leaving you with a mortgage that is underwater, i.e. you owe more than the home is actually worth. All of this can apply to investing as well. Using a 30% LTV for investing seems perfectly reasonable to me.