2x3xETFs

Leveraged ETFs are complex financial instruments designed to amplify the daily performance of an underlying index, sector, or asset class by a specific multiple—typically 2x or 3x. These funds achieve their leverage through sophisticated financial derivatives, including swaps, futures contracts, and options.

While leveraged ETFs can generate substantial profits during favorable market movements, they equally amplify losses when markets move against your position. A critical characteristic of these instruments is volatility decay, also known as beta slippage, which occurs due to the mathematical effects of daily rebalancing. This means that over extended periods, leveraged ETFs may significantly underperform their expected multiple of the underlying index's return.

Leveraged ETFs are primarily designed for short-term trading strategies and are generally unsuitable for long-term buy-and-hold investors. Professional traders often use them for hedging, speculation, or tactical asset allocation. Due to their complexity and risk profile, investors should thoroughly understand these instruments' mechanics and potential consequences before incorporating them into their trading strategies.