Leveraged ETF

A Leveraged ETF (Exchange-Traded Fund) is a type of fund that uses Financial Derivatives and debt to amplify the Returns of an underlying Index or Asset. These ETFs aim to deliver a multiple of the performance of a specified Benchmark, usually on a daily basis. For instance, a 2x leveraged ETF seeks to return twice the daily movement of its underlying index, while a 3x leveraged ETF aims for three times the daily performance.

Examples of Leveraged ETFs include:

  • ProShares Ultra S&P 500 (SSO) – aims for 2x the daily performance of the S&P 500.
  • Direxion Daily Gold Miners Bull 2x Shares (NUGT) – seeks to return 2x the daily performance of the NYSE Arca Gold Miners Index.
  • ProShares UltraShort QQQ (QID) – aims to deliver -2x the daily performance of the Nasdaq-100 Index.

Cases where leveraged ETFs are commonly used include:

  • Short-term trading: Traders looking to capitalize on short-term market movements.
  • Hedging: Investors may use leveraged ETFs to hedge against market downturns.
  • Speculative strategies: Traders seeking high-risk, high-reward investment opportunities.