What is a leveraged exchange-traded fund (ETF)?

A leveraged exchange-traded fund (ETF) is a marketable security that uses financial derivatives and debt to amplify the returns of an underlying index. While a traditional exchange-traded fund typically tracks the securities in its underlying index on a one-to-one basis, a leveraged ETF may aim for a 2:1 or 3:1 ratio.

Are leveraged ETFs right for You?

Leveraged ETFs are much riskier than traditional ETFs, but they can produce much higher returns. If used properly, these unique investments can be used to amplify portfolio returns or to hedge against market downturns. Find out how leveraged ETFs work, and if they’re right for your investment strategy. What Is a Leveraged ETF?

What is a 3x leveraged ETF?

Double Leveraged ETF, or 2x leveraged ETF, seeks to double the daily returns of the index. Triple Leveraged ETF, or 3x leveraged ETF, seeks to triple the daily returns of the index. For example, consider the example of a 3x leveraged ETF where the benchmark rises from 100 to 102 (+2%) on day-1, and falls from 102 back to 100 (-1.96%) on day-2.

What is an inverse leveraged ETF?

An inverse leveraged ETF aims to provide investors a multiple of the opposite of a benchmark’s performance through the use of derivative instruments like swaps and futures contracts. For example, a 2x inverse leveraged ETF would provide double the opposite returns of its benchmark index.