Leveraged ETF

Leveraged ETF (Exchange Traded Fund) is a type of trading fund that aims to track the positive multiple of the underlying index return on a daily basis. Leveraged ETFs mainly achieve the goal of positive multiples by operating futures contracts or other derivative financial products.

For example, if a leveraged ETF has a multiple of 2, then when the underlying index rises by 1%, the ETF's return will be 2%; conversely, when the underlying index falls by 1%, the ETF's return will be It will be -2%.

What are the advantages and risks of leveraged ETFs?

The advantage of leveraged ETFs is that they can help investors earn excess profits in the short term, especially when the market is volatile or has a clear trend. Leveraged ETFs also have the characteristics of traditional ETFs, such as transaction convenience, low fees, and high transparency.

However, leveraged ETFs also have many risks, and investors must pay attention to:

The positive multiple return rate pursued by leveraged ETFs is limited to a single day. Under daily compound interest calculation, the long-term return rate will deviate from the positive multiple performance of the prototype index and is not suitable for long-term holding.

Leveraged ETFs require daily dynamic adjustments and periodic rollovers, which are prone to derivative transaction fees, rollover costs, tracking errors and other factors that affect performance.

The futures or other derivative financial products invested by leveraged ETFs may differ from the spot price trend, resulting in basis risk.

Foreign indices invested in leveraged ETFs may be affected by no price limit, domestic and international trading time differences, and exchange rate risks.

How to choose and trade leveraged ETFs?

When selecting and trading leveraged ETFs, investors need to consider the following points:

Choose the appropriate multiple and underlying index based on your own risk tolerance, investment objectives and market judgment. Currently, there are leveraged ETFs issued in the Taiwan market, which can be divided into three categories: Taiwan stocks, overseas stocks, and U.S. bonds according to the investment targets.

Pay attention to the fund size, trading volume, bid-ask spread, tracking error and other indicators of leveraged ETFs, and choose ETFs with good liquidity and stable performance.

Understand the operating mechanism, trading rules and tax regulations of leveraged ETFs to avoid unnecessary losses or risks.

Implement strict risk management, set appropriate stop-loss and profit-stop points, monitor market changes at any time, and adjust trading strategies in a timely manner.

Conclusion

Leveraged ETF is a high-risk, high-reward investment tool suitable for experienced and short-term investors. When choosing and trading leveraged ETFs, investors must fully understand their characteristics and risks, and make reasonable judgments and decisions based on their own circumstances and market environment.