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
  • FINRA Bars Ex-LPL Broker Patrick Coogan: “Reckless Misrepresentation”

    Former Baton Rouge, Louisiana-based LPL Financial broker Patrick Coogan (CRD# 4576580) has been barred by the Financial Industry Regulatory Authority...

    Read More
  • Lazaros Coss: FINRA Bars Los Angeles Broker

    Lazaros Coss (CRD# 6476885), previously a broker registered with Northwestern Mutual Investment Services, was recently the subject of a disciplinary...

    Read More
  • Tim Hetrick: Boise Broker Sanctioned Over Alleged Forgeries

    Former US Brokerage broker Tim Hetrick (CRD# 2048466) has been sanctioned by the Financial Industry Regulatory Authority (FINRA) in connection...

    Read More
  • Steve Lu: Ex-JP Morgan Broker Investigated and Barred by FINRA

    Steve Lu (CRD# 6856088), previously a representative of JP Morgan in Altadena, California, has been sanctioned by the Financial Industry...

    Read More
  • Previous
  • Next