1x and 2x Leveraged Equity

1X and 2X leveraged equity mutual fund funds and ETFs are designed... 1X and 2X leveraged equity mutual fund funds and ETFs are designed to offer magnified exposure to movements in either individual stocks or the broader equity market. These funds aim to achieve a fixed multiple of daily returns compared to their reference stock or index. The leverage factor can range from 1.25% to 2X. For example, if the S&P 500 Index rises 1% on a given day, a 1.25% bull ETF linked to the index should rise 1.25%. On the other hand, if the index falls 1%, this same fund should decline by 1.25%. To achieve their objectives, leveraged equity mutual funds and ETFs enter into derivative contracts with banks and other financial institutions. It's important to note that these funds are only meant for very-short term trading. Because they are rebalanced daily depending on market fluctuations, 1X and 2X leveraged funds may not produce the same result if held for weeks, months or longer. In fact, it’s quite possible that a leveraged fund may fall in value over a longer period, even if the underlying market rises. This is especially true of 2X funds. 1X and 2X leveraged equity mutual funds and ETFs are attractive for short-term traders with a large appetite for risk. Conservative investors are better off owning an unleveraged stock or mutual fund if they want exposure to a particular equity, sector, or stock index. Last Updated: 12/04/2024 View more View less

1X and 2X leveraged equity mutual fund funds and ETFs are designed to offer magnified exposure to movements in either individual stocks or the broader equity market. These funds aim to achieve a... 1X and 2X leveraged equity mutual fund funds and ETFs are designed to offer magnified exposure to movements in either individual stocks or the broader equity market. These funds aim to achieve a fixed multiple of daily returns compared to their reference stock or index. The leverage factor can range from 1.25% to 2X. For example, if the S&P 500 Index rises 1% on a given day, a 1.25% bull ETF linked to the index should rise 1.25%. On the other hand, if the index falls 1%, this same fund should decline by 1.25%. To achieve their objectives, leveraged equity mutual funds and ETFs enter into derivative contracts with banks and other financial institutions. It's important to note that these funds are only meant for very-short term trading. Because they are rebalanced daily depending on market fluctuations, 1X and 2X leveraged funds may not produce the same result if held for weeks, months or longer. In fact, it’s quite possible that a leveraged fund may fall in value over a longer period, even if the underlying market rises. This is especially true of 2X funds. 1X and 2X leveraged equity mutual funds and ETFs are attractive for short-term traders with a large appetite for risk. Conservative investors are better off owning an unleveraged stock or mutual fund if they want exposure to a particular equity, sector, or stock index. Last Updated: 12/04/2024 View more View less