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How does the leveraged ETF work?

Mutual Funds, Hedge Funds and ETFs

How does the leveraged ETF work?

Postby tupac94 » Sun Mar 17, 2013 2:50 pm

First of all, these leveraged ETFs try to amplify their benchmark like the S&P 500 for an example. Firms use, derivatives, futures/forwards contracts, contracts and equity swaps in order to achieve this effect.

Typically there x2 or x3 or a 3:2 ratio. These can be very risk, since they magnify the benchmark's performance. However, they can be utilized if you feel you know what the benchmark is going to do.

Look up S&P500 x3 ... either a bull or bear one. I just learned about the bear S&P 500 3:1 payout. That would work very well during a financial recession.
tupac94
 
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Joined: Mon Jun 25, 2012 3:53 pm

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