Need help understanding leveraged ETF's
- Thread starter Prime Rib
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I am interested in these too. Aren't they basically more volatile ETFs? I like the sound of volatile ETF. There was a great channel on discord with a section on this but I was banned from it. lol.
https://www.investopedia.com/terms/l/leveraged-etf.asp
Go to Reddit and find a chat. Ton of stock chats.
https://www.investopedia.com/terms/l/leveraged-etf.asp
Go to Reddit and find a chat. Ton of stock chats.
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Leveraged exchange-traded funds, or ETFs, can effectively double or triple your exposure to a certain index or asset class and can be used to create a long (bull) or short (bear) position. For example, a triple-leveraged S&P 500 ETF will return three times the daily performance of that index. However, before you buy a triple-leveraged ETF, it's important to know how they work -- and the drawbacks of holding them for long periods of time.
https://www.fool.com/investing/2017/06/25/3-triple-leveraged-etfs-and-why-you-shouldnt-buy-a.aspx
Again, this is a simplified example, but mathematically, the point is that declines in the index have a more devastating effect on the long-term performance of leveraged ETFs, essentially creating a negative bias over time (unless the index goes straight up forever). In other words, these funds rarely, if ever, match triple their index's performance over long time periods.
https://www.fool.com/investing/2017/06/25/3-triple-leveraged-etfs-and-why-you-shouldnt-buy-a.aspx
Again, this is a simplified example, but mathematically, the point is that declines in the index have a more devastating effect on the long-term performance of leveraged ETFs, essentially creating a negative bias over time (unless the index goes straight up forever). In other words, these funds rarely, if ever, match triple their index's performance over long time periods.
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Volatile and from what I've read a "short term" investment, which confuses me. I'm looking at one that pretty much doubled the last 52 weeks. If it does the same this next 52 weeks why would you not stay put?
Here is my big concern..........
"Leveraged ETFs generate their leverage through the use of derivative positions. Because derivatives are taxed differently from equity or fixed-income securities, investors should be aware that these funds may not have the same tax efficiencies that investors have come to expect from many ETF products".
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May I ask why you are interested in leveraged ETFs? You like shortcuts? Impatient? Gambler? That is me anyway and I why I am interested in them. lol
A regular etf I have and like personally is WOOD. Follows timber. Been up nice and steady.
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May I ask why you are interested in leveraged ETFs? You like shortcuts? Impatient? Gambler? That is me anyway and I why I am interested in them. lol
A regular etf I have and like personally is WOOD. Follows timber. Been up nice and steady.
WOOD, lol. Nice one. I'm a gambler. I like the thrill. I put in 10k and my goal is a 50% return in a years time.
The leveraged ETF is DFEN.
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Ok, this is a common condition so don't worry. I have heard Mark Cuban and Tony Robbins say the same thing. Use 10% of your portfolio just to fuck around with. Gamble with. To get that fix. We all need that fix. And that 10% can give it to us.
aerospace etf .hmm. sounds interesting. I may have to look into that. oh, not just that, but defense as well. Basically boeing, lockheed, etc Companies like that would be in the portfolio. Good companies.
I was right, here are their top holdings:
Name Symbol % Assets
Boeing Co BA 8.77%
United Technologies Corp UTX 5.99%
Lockheed Martin Corp LMT 5.57%
Dow Jon Us A & D Indx Sw N/A 4.68%
General Dynamics Corp GD 4.62%
Raytheon Co
https://finance.yahoo.com/quote/DFEN/holdings?p=DFEN
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@JonesBones Check out NXPI. Semi-conductor co. in the Netherlands. Qualcomm is trying to buy the company. They just upped their bid to 44bil, and when they did NXPI stock went up $7 on Tuesday. If NXPI accepts the resulting company will be the largest provider of semi-conductors to auto manufacturers in the world.
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I'm going to keep this as simple as possible.
1. Leveraged ETFs seeks to amplify the movement of particular index or sector fund by using derivatives and debt. They're consider extremely high risk investments, much more volatile than your regular stocks or ETFs. While you can buy them, they're not designed for the average trader. Leveraged ETFs are available in both bull and bear, meaning you can actually bet on the market tanking.
2. If the index (DOW, S&P 500, TSX) moves up 1%, leveraged ETS mirroring those indexes will move up 2% to 3% depending on how much leveraged the fund is. Typically it's 2X or 3X, although 4X leveraged ETFs are coming. Similarly, if the indexes drop 1%, these will also go down in greater amplitude.
3. There is a popular media myth that leveraged ETFs "decay" over time and drain your investment value. They don't, but they have higher management fees than your regular ETFs and most re-balances daily. Also, if the index drops 10% daily for two days straight for a $10,000 investment in a 3X bull leveraged ETF, you're looking at $4,900. Even if the index rises 10% daily for the next two days, your investment will only be back at $8,281. It needs to rise more than it dropped to make up the difference, and that's where the decay misconception came from.
4. Leveraged ETFs are great when market volatility is low and the economy is performing well. You need to do thorough research before you commit though. If you're not an experienced trader, you have no business touching leveraged ETFs. Stick to regular ETFs and let time work in your favor. I personally lost about $20k in these investments when stocks tanked in early February, and even with the recovery of the last week and a half, I am still down $6k. It's not for the faint of heart.
5. Last and most important, leveraged ETFs can absolutely destroy your net worth if there is a major stock crash, i.e. 1987, 1999, 2008. Tread carefully and don't get greedy. Have a reasonable exit price in your head and do not hold them for extended period of time.
1. Leveraged ETFs seeks to amplify the movement of particular index or sector fund by using derivatives and debt. They're consider extremely high risk investments, much more volatile than your regular stocks or ETFs. While you can buy them, they're not designed for the average trader. Leveraged ETFs are available in both bull and bear, meaning you can actually bet on the market tanking.
2. If the index (DOW, S&P 500, TSX) moves up 1%, leveraged ETS mirroring those indexes will move up 2% to 3% depending on how much leveraged the fund is. Typically it's 2X or 3X, although 4X leveraged ETFs are coming. Similarly, if the indexes drop 1%, these will also go down in greater amplitude.
3. There is a popular media myth that leveraged ETFs "decay" over time and drain your investment value. They don't, but they have higher management fees than your regular ETFs and most re-balances daily. Also, if the index drops 10% daily for two days straight for a $10,000 investment in a 3X bull leveraged ETF, you're looking at $4,900. Even if the index rises 10% daily for the next two days, your investment will only be back at $8,281. It needs to rise more than it dropped to make up the difference, and that's where the decay misconception came from.
4. Leveraged ETFs are great when market volatility is low and the economy is performing well. You need to do thorough research before you commit though. If you're not an experienced trader, you have no business touching leveraged ETFs. Stick to regular ETFs and let time work in your favor. I personally lost about $20k in these investments when stocks tanked in early February, and even with the recovery of the last week and a half, I am still down $6k. It's not for the faint of heart.
5. Last and most important, leveraged ETFs can absolutely destroy your net worth if there is a major stock crash, i.e. 1987, 1999, 2008. Tread carefully and don't get greedy. Have a reasonable exit price in your head and do not hold them for extended period of time.
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Their chart is a bit iffy. DFEN I mean. You can see the most recent candle is sitting on the 180 moving average. It could go below that. Or maybe it is a good time to buy.
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#3 is a bitch. Thanks for taking your time explaining. What I have in the one Leveraged ETF I got into I will probably look for a slight spike and sell. It did make me some money FWIW.
Sorry you lost some cash but thanks for the lesson.
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May I ask why you are interested in leveraged ETFs? You like shortcuts? Impatient? Gambler? That is me anyway and I why I am interested in them. lol
A regular etf I have and like personally is WOOD. Follows timber. Been up nice and steady.
Interesting.
Is the underlying timber really that steady though ? Doesn t it crash and burn when Real Estate crashes ?
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I have no clue but wood is something that is always in demand. Actually, ya it had a big dip around 2009. That was a major crisis though. I can't see that happening again soon. The housing market scam.
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Lol sounds like similar exposure than mortgage bonds.
But yeah it certainly sounds stable most of the time.
But then if it s so stable, does it even compensate financing costs ?
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I don't know but something that does affect it is Trump's new tariffs on foreign timber. Most of that ETF is composed of American timber companies but there is a significant amount of Canadian ones too. I think he already did that a while ago though and it didn't kill the stock. I see it more as a raw material. Housing is certainly connected to it but the raw material itself is what I view it as.
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This is a natural gas etf that could be a nice swing. It has a pattern of this:
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Orgasmo summed it up pretty well. Your losses take a bigger hit then your gains. Even if something went up 20%, then back down 20%, you would think you'll be even again, but you will actually be in the red slightly. 2017 would have been a great time to invest in leveraged ETFs if you exited last month. There can be much more crazier extremes and losses if their is a huge market crash, sometimes not even lining up to their indexes.
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Don't get me wrong. Leveraged ETFs are a great way to surf a bull market, but they're meant for institutional hedge funds where a 5% daily movement can mean tens of millions in profit from the sheer volume of capital alone. We don't have that kind of capital and insider information to maximize gains. That doesn't mean the average guy can't make some money from them. Don't let greed blind you and stay in too long. Never get into something without knowing the risks.
If you're the type to buy and hold for the long term, this isn't the type of investment for you. Holding for short to medium term is okay (weeks to six months) as long as you have a clear exit price point or date. I'm gonna bail out of as soon as earning season is done by June.
