Costs that do not change with volume in the short run, such as rent, salaried staff and depreciation on plant already built.
The share of a cost base that is fixed determines operating-leverage. High fixed costs make profit explode upward on volume growth and collapse on volume declines, which is why airlines, semiconductor fabs and cinemas swing so violently.
Fixed is a matter of time horizon. Almost everything is variable over five years; very little is variable over one quarter.
Example: Northwind's cost base is $470M of largely variable-costs in COGS plus $250M of mostly fixed opex. A 10% revenue decline cuts gross profit by $37M but opex barely moves, so operating income falls from $120M to $83M, a 31% drop.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Educational only, not advice. Spotted an error? Post in Site Feedback.