What Is a Leveraged ETF?

Business & Management
#1

A leveraged exchange-traded fund (ETF) is a marketable instrument that leverages the returns of an underlying index by using financial derivatives and loans. A leveraged exchange-traded fund may aim for a 2:1 or 3:1 ratio, whereas a standard exchange-traded fund generally tracks the equities in its underlying index one-to-one.
Most indices, such as the Nasdaq 100 Index and the Dow Jones Industrial Average, include leveraged ETFs .

#2

  • A leveraged exchange-traded fund (ETF) uses financial derivatives and debt to amplify the returns of an underlying index

  • While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, a leveraged ETF may aim for a 2:1 or 3:1 ratio

  • Leverage is a double-edged sword meaning it can lead to significant gains, but can also lead to significant losses

Leveraged ETFs are available for most indexes, such as the Nasdaq 100 Index and the Dow Jones Industrial Average (DJIA).