Cryptocurrency Q&A
Why is it bad to hold leveraged ETFs long term?
Why is it bad to hold leveraged ETFs long term?
Bianca
Tue Aug 27 2024
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7 answers
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Can you explain why it's generally considered unwise to hold Leveraged exchange-traded funds (ETFs) for extended periods? Isn't the daily rebalancing supposed to help maintain the leverage ratio, potentially amplifying returns? Are there any specific risks or drawbacks that make long-term ownership of these products less appealing? I'm curious to understand the reasoning behind this recommendation.
7 answers
lucas_taylor_teacher
Thu Aug 29 2024
One of the primary reasons for this decay is the compounding effect of daily returns.
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MysticChaser
Thu Aug 29 2024
This means that even if the ETF is tracking its underlying asset or index accurately on a daily basis, over time, the cumulative effect of small gains or losses can lead to significant deviations from the expected performance.
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RainbowlitDelight
Thu Aug 29 2024
Additionally, the volatility of the market can also contribute to the decay of Leveraged ETFs.
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Bianca
Thu Aug 29 2024
Leveraged ETFs are financial instruments designed to provide investors with amplified exposure to an underlying asset or index.
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Raffaele
Thu Aug 29 2024
The higher the volatility, the more pronounced the effect of compounding, which can result in even greater deviations from the expected performance.
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