Leveraged exchange-traded fund (LETF)
Investing in LETFs
A leveraged exchange-traded fund (LETF) is a financial instrument that uses derivatives and debt to amplify the returns of an underlying index or asset.
Investing in leveraged ETFs (LETFs) can be appealing for several reasons, particularly for experienced investors and short-term traders. Here are the main motivations:
1. Amplified Returns
LETFs offer the potential to amplify daily returns of an underlying index or asset. For instance, a 2x or 3x leveraged ETF can deliver two or three times the daily performance of the benchmark, making them attractive during bullish market conditions.
2. Short-Term Trading Opportunities
LETFs are ideal for short-term traders who want to capitalize on market movements quickly. They allow traders to implement tactical strategies, such as betting on market trends or volatility, without requiring large amounts of capital.
3. Hedging Capabilities
Inverse leveraged ETFs provide a way to profit from declining markets or hedge against potential losses in other inv…