Leveraged ETFs: All you need to know
When it comes to trading tools that offer speed, volatility, and the potential for amplified returns, leveraged ETFs are in a league of their own, especially for short-term trading. These financial instruments are built for one thing: delivering multiple times the daily return of an underlying index. That means if the S&P 500 rises by 1%, a 2x leveraged ETF tracking it should rise by 2%. On paper, the appeal is clear — higher returns with less capital. But what traders need to remember is that the risk scales just as fast. Leveraged ETFs come with various risks, including counterparty risk and transaction costs, which are the potential losses or fluctuations in investment value due to the failure of another party to fulfill their financial obligations. Leveraged ETFs are not meant for the long-haul investor looking for steady gains over decades. They are designed for short-term strategies, offering traders the chance to capitalize on intraday or short-term market moves. But b...