Dangers of Leveraged ETFs



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Whether you're new to ETF investing or a seasoned pro, you need to know the dangers of leveraged ETFs.

If you're thinking about buying a 2x leveraged short or long ETF or, even worse, you're thinking about "investing" in a 3x Bear or Bull ETF, you need to read this article and others on the internet to steer you away from these weapons of wealth destruction.

The first thing you need to know is that over the long term, these leveraged vehicles are headed to zero. Plain and simple math will show you that. So, if you're thinking of holding one of these for any length of time you need to consider the following.

These ETFs sometimes accurately track a leveraged move in the markets. For instance, a x2 Ultra leveraged Financials ETF would possibly return 10% on a 5% SINGLE day move up in financial sector stocks. But, if you hold this etf for many days where the market has ups and downs, and the market gains 20%, you will not likely have gained 40%. This is a matter of simple decay.

If the stock drops 5%, a move up of 5% will not return the stock to it's original value. This is simple math. $100 stock drops 50% to $50. The $50 dollar stock, to return to $100 needs to now gain 100%!! A 2x leveraged ETF would likely need to see a 2x rebound in the market. And a 3x leveraged ETF a 3 times move! Over the long term this can take your capital to zero. Look at the split adjusted chart for FAS (3X financial bear). Since March 2009 is has lost about 99% of it's value.

Another aspect of decay are management fees. The fund managers, like all ETFs charge fees.

Investing with Inverse Leveraged ETFs?

An EXPERIENCED and GOOD day trader might, but you are probably not one of these since they are very very rare. Otherwise, you might make money shorting a leveraged ETF, but you would likely lose large sums or small ammounts. If the ETF decays downwards, you would probably be paying large fees to borrow shares from your brokerage for such a volatile stock. If it moves violently upwards, you might get stuck with a margin call from your broker.

Conclusion: it is generally best to avoid these ETFs altogether. Be sure to read our disclaimer. Thanks.

Complete list of 2x Leveraged ETFS in Canada, USA and London. The leveraged three times ETFs below this list are American only. There are no 3x leverage in Canada.

2x Leverage
ETF SYM TYPE NAT
COMEX Silver Bear Plus ETF HZD- (TSX traded)     TSX traded ETF
COMEX Silver Bull Plus ETF HZU- (TSX traded)     TSX traded ETF
Horizons BetaPro COMEX Gold Bullion Bear Plus ETF HBD- (TSX traded)     TSX traded ETF
Horizons BetaPro COMEX Gold Bullion Bull Plus ETF HBU- (TSX traded)     TSX traded ETF
Horizons BetaPro NYMEX Crude Oil Bear Plus ETF HOD- (TSX traded)     TSX traded ETF
Horizons BetaPro NYMEX Crude Oil Bull Plus ETF HOU- (TSX traded)     TSX traded ETF
Horizons BetaPro NYMEX Natural Gas Bear Plus ETF HND- (TSX traded)     TSX traded ETF
Horizons BetaPro NYMEX Natural Gas Bull Plus ETF HNU- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX 60 Bear ETF HXD- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX 60 Bull ETF HXU- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX Capped Energy Bear Plus ETF HED- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF HEU- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX Capped Financials Bear Plus ETF HFD- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX Capped Financials Bull Plus ETF HFU- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF HGD- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX Global Gold Bull Plus ETF HGU- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX Global Mining Bear Plus ETF HMD- (TSX traded)     TSX traded ETF
Horizons BetaPro S&P/TSX Global Mining Bull Plus ETF HMU- (TSX traded)     TSX traded ETF
MSCI Emerging Markets Bear Plus ETF HJD- (TSX traded)     TSX traded ETF
MSCI Emerging Markets Bull Plus ETF HJU- (TSX traded)     TSX traded ETF
NASDAQ-100 Bear Plus ETF HQD- (TSX traded)     TSX traded ETF
NASDAQ-100 Bull Plus ETF HQU- (TSX traded)     TSX traded ETF
S&P 500 Bear Plus ETF HSD- (TSX traded)     TSX traded ETF
S&P 500 Bull Plus ETF HSU- (TSX traded)     TSX traded ETF
S&P Agribusiness North America Bear Plus ETF HAD- (TSX traded)     TSX traded ETF
S&P Agribusiness North America Bull Plus ETF HAU- (TSX traded)     TSX traded ETF
US 30 Year Bond Bear Plus ETF HTD- (TSX traded)     TSX traded ETF
US 30 Year Bond Bull Plus ETF HTU- (TSX traded)     TSX traded ETF
US Dollar Bear Plus ETF HDD- (TSX traded)     TSX traded ETF
US Dollar Bull Plus ETF HDU- (TSX traded)     TSX traded ETF
ProShares UltraShort S&P 500 Fund SDS         
ProShares Ultra S&P 500 Fund SSO         
ProShares UltraShort 20+ Year Treasury Bond ETF TBT         
ProShares Ultra QQQ Fund QLD         
ProShares UltraShort QQQ Fund QID         
ProShares UltraShort Financials Fund SKF         
ProShares UltraShort Real Estate Fund SRS         
ProShares Ultra Financials Fund UYG         
ProShares UltraShort Dow 30 Fund DXD         
ProShares Ultra Real Estate Fund URE         
ProShares UltraShort Russell 2000 Fund TWM         
ProShares Ultra Oil & Gas Fund DIG         
ProShares Ultra Dow 30 Fund DDM         
ProShares Ultra Basic Materials Fund UYM         
Barclays S&P 500 2X Long 2009 ETN+ BXUC      
Barclays S&P 500 2X Short 2009 ETN+ BXDC      
Direxion BRIC Bear 2X ETF BRIS      
Direxion BRIC Bull 2X ETF BRIL      
Direxion India Bear 2X ETF INDZ      
Direxion India Bull 2X ETF INDL      
Market Vectors Double Long Euro ETN URR      
Market Vectors Double Short Euro ETN DRR      
PowerShares DB Agriculture Double Long ETN DAG      
PowerShares DB Agriculture Double Short ETN AGA      
PowerShares DB Base Metals Double Long ETN BDD      
PowerShares DB Base Metals Double Short ETN BOM      
PowerShares DB Commodity Double Long ETN DYY      
PowerShares DB Commodity Double Short ETN DEE      
PowerShares DB Crude Oil Double Short ETN DTO      
PowerShares DB Gold Double Long ETN DGP      
PowerShares DB Gold Double Short ETN DZZ      
ProShares Ultra 20+ Year Treasury ETF UBT      
ProShares Ultra 7-10 Year Treasury ETF UST      
ProShares Ultra Consumer Goods Fund UGE      
ProShares Ultra Consumer Services Fund UCC      
ProShares Ultra DJ-AIG Commodity ETF UCD      
ProShares Ultra DJ-AIG Crude Oil ETF UCO      
ProShares Ultra Euro ETF ULE      
ProShares Ultra FTSE/Xinhua China 25 Index Fund XPP      
ProShares Ultra Gold ETF UGL      
ProShares Ultra Health Care Fund RXL      
ProShares Ultra Industrials Fund UXI      
ProShares Ultra MidCap 400 Fund MVV      
ProShares Ultra MSCI EAFE Index Fund EFO      
ProShares Ultra MSCI Emerging Markets Index Fund EET      
ProShares Ultra MSCI Japan Index Fund EZJ      
ProShares Ultra Russell 1000 Growth Fund UKF      
ProShares Ultra Russell 1000 Value Fund UVG      
ProShares Ultra Russell 2000 Fund UWM      
ProShares Ultra Russell 2000 Growth Fund UKK      
ProShares Ultra Russell 2000 Value Fund UVT      
ProShares Ultra Russell 3000 Index Fund UWC      
ProShares Ultra Russell MidCap Growth Fund UKW      
ProShares Ultra Russell MidCap Value Fund UVU      
ProShares Ultra Semiconductors Fund USD      
ProShares Ultra Silver ETF AGQ      
ProShares Ultra Small Cap 600 Fund SAA      
ProShares Ultra Technology Fund ROM      
ProShares Ultra Telecommunications ETF LTL      
ProShares Ultra Utilities Fund UPW      
ProShares Ultra Yen ETF YCL      
ProShares UltraShort 7-10 Year Treasury Bond ETF PST      
ProShares UltraShort Basic Materials Fund SMN      
ProShares UltraShort Consumer Goods Fund SZK      
ProShares UltraShort Consumer Services Fund SCC      
ProShares UltraShort DJ-AIG Commodity ETF CMD      
ProShares UltraShort DJ-AIG Crude Oil ETF SCO      
ProShares UltraShort Euro ETF EUO      
ProShares UltraShort FTSE/Xinhua China 25 Fund FXP      
ProShares UltraShort Gold ETF GLL      
ProShares UltraShort Health Care Fund RXD      
ProShares UltraShort Industrials Fund SIJ      
ProShares UltraShort MidCap 400 Fund MZZ      
ProShares UltraShort MSCI Brazil Index Fund BZQ      
ProShares UltraShort MSCI EAFE Fund EFU      
ProShares UltraShort MSCI Emerging Markets Fund EEV      
ProShares UltraShort MSCI Europe Index Fund EPV      
ProShares UltraShort MSCI Japan Fund EWV      
ProShares UltraShort MSCI Mexico Investable Market Index Fund SMK      
ProShares UltraShort MSCI Pacific ex-Japan Index Fund JPX      
ProShares UltraShort Oil & Gas Fund DUG      
ProShares UltraShort Russell 1000 Growth Fund SFK      
ProShares UltraShort Russell 1000 Value Fund SJF      
ProShares UltraShort Russell 2000 Growth Fund SKK      
ProShares UltraShort Russell 2000 Value Fund SJH      
ProShares UltraShort Russell 3000 Index Fund TWQ      
ProShares UltraShort Russell MidCap Growth Fund SDK      
ProShares UltraShort Russell MidCap Value Fund SJL      
ProShares UltraShort Semiconductors Fund SSG      
ProShares UltraShort Silver ETF ZSL      
ProShares UltraShort Small Cap 600 Fund SDD      
ProShares UltraShort Technology Fund REW      
ProShares UltraShort Telecommunications ETF TLL      
ProShares UltraShort Utilities Fund SDP      
ProShares UltraShort Yen ETF YCS      
Rydex 2X Russell 2000 ETF RRY      
Rydex 2X S&P 500 ETF RSU      
Rydex 2X S&P MidCap 400 ETF RMM      
Rydex 2X S&P Select Sector Energy ETF REA      
Rydex 2X S&P Select Sector Financial ETF RFL      
Rydex 2X S&P Select Sector Health Care ETF RHM      
Rydex 2X S&P Select Sector Technology ETF RTG      
Rydex Inverse 2X Russell 2000 ETF RRZ      
Rydex Inverse 2X S&P 500 ETF RSW      
Rydex Inverse 2X S&P MidCap 400 ETF RMS      
Rydex Inverse 2X S&P Select Sector Energy ETF REC      
Rydex Inverse 2X S&P Select Sector Financial ETF RFN      
Rydex Inverse 2X S&P Select Sector Health Care ETF RHO      
Rydex Inverse 2X S&P Select Sector Technology ETF RTW      
ETFS Leveraged Agriculture ETF LAGR-London Exchange      
ETFS Leveraged All Commodities ETF LALL-London Exchange      
ETFS Leveraged Aluminium ETF LALU-London Exchange      
ETFS Leveraged Cocoa ETF LCOC-London Exchange      
ETFS Leveraged Coffee ETF LCFE-London Exchange      
ETFS Leveraged Copper ETF LCOP-London Exchange      
ETFS Leveraged Corn ETF LCOR-London Exchange      
ETFS Leveraged Cotton ETF LCTO-London Exchange      
ETFS Leveraged Crude Oil ETF LOIL-London Exchange      
ETFS Leveraged Energy ETF LNRG-London Exchange      
ETFS Leveraged Ex-Energy ETF LNEY-London Exchange      
ETFS Leveraged Gasoline ETF LGAS-London Exchange      
ETFS Leveraged Gold ETF LBUL-London Exchange      
ETFS Leveraged Grains ETF LGRA-London Exchange      
ETFS Leveraged Heating Oil ETF LHEA-London Exchange      
ETFS Leveraged Industrial Metals ETF LIME-London Exchange      
ETFS Leveraged Lead ETF LLEA-London Exchange      
ETFS Leveraged Lean Hogs ETF LLHO-London Exchange      
ETFS Leveraged Live Cattle ETF LLCT-London Exchange      
ETFS Leveraged Livestock ETF LLST-London Exchange      
ETFS Leveraged Natural Gas ETF LNGA-London Exchange      
ETFS Leveraged Nickel ETF LNIK-London Exchange      
ETFS Leveraged Petroleum ETF LPET-London Exchange      
ETFS Leveraged Platinum ETF LPLA-London Exchange      
ETFS Leveraged Precious Metals ETF LPMT-London Exchange      
ETFS Leveraged Silver ETF LSIL-London Exchange      
ETFS Leveraged Softs ETF LSFT-London Exchange      
ETFS Leveraged Soybean Oil ETF LSYO-London Exchange      
ETFS Leveraged Soybeans ETF LSOB-London Exchange      
ETFS Leveraged Sugar ETF LSUG-London Exchange      
ETFS Leveraged Tin ETF LTIM-London Exchange      
ETFS Leveraged Wheat ETF LWEA-London Exchange      
ETFS Leveraged Zinc ETF LZIC-London Exchange      
ETFX DAX 2X Long ETF DEL2-London Exchange      
ETFX DAX 2X Long ETF Sterling DL2P-London Exchange      
ETFX DAX 2X Short ETF DES2-London Exchange      
ETFX DAX 2X Short ETF Sterling DS2P-London Exchange      
       
       
List of 3X leveraged ETFs in Can, USA, UK
ETF SYM TYPE NAT
Direxion Financial Bear 3X - Triple-Leveraged ETF (FAZ)         
Direxion Financial Bull 3X - Triple-Leveraged ETF (FAS)         
Direxion Small Cap Bear 3X - Triple-Leveraged ETF (TZA)         
Direxion Small Cap Bull 3X - Triple-Leveraged ETF (TNA)         
Direxion Large Cap Bull 3X - Triple-Leveraged ETF (BGU)         
Direxion Large Cap Bear 3X - Triple-Leveraged ETF (BGZ)         
Barclays S&P 500 3X Long 2009 ETN+ (BXUB)      
Barclays S&P 500 3X Short 2009 ETN+ (BXDD)      
Direxion 10-Year Treasury Bear 3X - Triple-Leveraged ETF (TYO)      
Direxion 10-Year Treasury Bull 3X - Triple-Leveraged ETF (TYD)      
Direxion 2-Year Treasury Bear 3X - Triple-Leveraged ETF (TWOZ)      
Direxion 2-Year Treasury Bull 3X - Triple-Leveraged ETF (TWOL)      
Direxion 30-Year Treasury Bear 3X - Triple-Leveraged ETF (TMV)      
Direxion 30-Year Treasury Bull 3X - Triple-Leveraged ETF (TMF)      
Direxion China Bear 3X - Triple-Leveraged ETF (CZI)      
Direxion China Bull 3X - Triple-Leveraged ETF (CZM)      
Direxion Developed Markets Bear 3X - Triple-Leveraged ETF (DPK)      
Direxion Developed Markets Bull 3X - Triple-Leveraged ETF (DZK)      
Direxion Emerging Markets Bear 3X - Triple-Leveraged ETF (EDZ)      
Direxion Emerging Markets Bull 3X - Triple-Leveraged ETF (EDC)      
Direxion Energy Bear 3X - Triple-Leveraged ETF (ERY)      
Direxion Energy Bull 3X - Triple-Leveraged ETF (ERX)      
Direxion Latin America Bear 3X - Triple-Leveraged ETF (LHB)      
Direxion Latin America Bull 3X - Triple-Leveraged ETF (LBJ)      
Direxion Mid-Cap Bear 3X - Triple-Leveraged ETF (MWN)      
Direxion Mid-Cap Bull 3X - Triple-Leveraged ETF (MWJ)      
Direxion Real Estate Bear 3X - Triple-Leveraged ETF (DRV)      
Direxion Real Estate Bull 3X - Triple-Leveraged ETF (DRN)      
Direxion Semiconductor Bear 3X - Triple-Leveraged ETF (SOXS)      
Direxion Semiconductor Bull 3X - Triple-Leveraged ETF (SOXL)      
Direxion Technology Bear 3X - Triple-Leveraged ETF (TYP)      
Direxion Technology Bull 3X - Triple-Leveraged ETF (TYH)      
ProShares UltraPro Dow 30 ETF (UDOW)      
ProShares UltraPro MidCap 400 ETF (UMDD)      
ProShares UltraPro NASDAQ 100 ETF (TQQQ)      
ProShares UltraPro Russell 2000 ETF (URTY)      
ProShares UltraPro S&P 500 Index Fund (UPRO)      
ProShares UltraPro Short Dow 30 ETF (SDOW)      
ProShares UltraPro Short NASDAQ 100 ETF (SQQQ)      
ProShares UltraPro Short Russell 2000 ETF (SRTY)      
ProShares UltraPro Short S&P 500 Index Fund (SPXU)      
ProShares UltraPro Short S&P MidCap 400 ETF (SMDD)