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
protected by reCAPTCHA Privacy - Terms
Latest Blog Posts
  • Bron Thompson: CIG Advisor Faces 6-Figure GWG Complaints

    Dunn, North Carolina financial advisor Bron Thompson (CRD# 4350479) has received multiple investor complaints relating to investments in GWG Holdings....

    Read More
  • Bilo Bouab: Garden State Advisor Receives 6-Figure Complaints

    Red Bank, New Jersey financial advisor Bilo Bouab (CRD# 4340284) has received multiple investor complaints alleging that his conduct resulted...

    Read More
  • Rich Ceffalio: $3.5mm Complaint Against Fired LPL Advisor

    Arlington Heights, Illinois financial advisor Rich Ceffalio (CRD# 2619565) was terminated from his former member firm in connection with alleged...

    Read More
  • Angelo Anello: Tailored Wealth Advisor Lands $84K Complaint

    Needham, Massachusetts financial advisor Angelo Anello (CRD# 2835091) allegedly recommended unsuitable investments, according to a recent investor complaint. Financial Industry...

    Read More
  • Previous
  • Next