Switch to ADA Accessible Theme
Close Menu
Free Consultation: 888-976-6111
Home > Product Types > Leveraged ETFs

Leveraged ETFs

Exchange-Traded Funds (ETFs), are designed to track the price of an underlying index, or commodity (such as the S&P 500 or the price of Oil). Leveraged ETFs are designed to do the same, except are designed to move typically 2x, 3x, or 4x the underlying index on a daily basis. Leveraged ETFs contain unique risks compared to other assets. First, the leverage component means that gains or losses are magnified. For instance, if an underling index declines 20%, the 3x leveraged ETF could lose 60% of its value. The leverage component makes leveraged ETFs unsuitable for most retail investors.

The other reason that leveraged ETFs are unsuitable for most investors is because they are not designed to be held for more than one day. The reason they are not designed to be held for more than one day is because of “decay” or “constant leverage trap.” For instance, a 1% rise in an underlying index’s value would cause a 3x leveraged ETF to increase exposure 3%. Then, a 1% loss would be larger than the original 1% gain because of the prior increase in exposure. Because of this concept, volatile assets can cause leveraged ETFs to lose value over time, even if the underlying index performs well.

Financial advisors must explain to clients the risks of investing in leveraged ETFs and the risks of holding them for more than one day.

Please contact us for a free and confidential case evaluation if you believe that you have lost money due to investing in leveraged ETFs.

Contact Us For A Free Case Evaluation
Latest Blog Posts
  • Franklin BSP Realty Trust/Benefit Street Partners Realty Trust Losses

    On October 18th, 2021, the non-traded, publicly registered real estate investment trust (REIT) Franklin BSP Realty Trust completed its merger...

    Read More
  • Sierra Income: Was Non-Traded BDC Investment Too Risky?

    In March 2022 Sierra Income Corp., previously a non-traded business development company (BDC), marked the completion of its merger with...

    Read More
  • Hospitality Investors Trust Bankruptcy: Investors May Have Options

    Hospitality Investors Trust is a publicly registered, non-traded real estate investment trust whose initial offering became effective in 2014 and...

    Read More
  • Thomas Rydell: CFP Board Sanctions Royal Alliance Advisor

    Milpitas, California financial advisor Thomas Rydell (CRD# 5020102) recently received an investor complaint alleging six-figure damages. Records provided by the...

    Read More
  • Previous
  • Next