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Wall St leveraged and inverse ETFs
wall stLeveraged and inverse ETFs on Stake
There are a range of ETFs available on Stake that are designed for different market conditions – including leveraged and inverse ETFs. Before investing in these products, it’s important to understand how they work.
What is a leveraged ETF?
A leveraged ETF is an exchange-traded fund that uses financial derivatives and debt to amplify the returns of its underlying benchmark. These ETFs typically aim to deliver a multiple of the daily performance of the index they track.
For example, a 2x leveraged ETF tracking the S&P 500 aims to return twice the daily movement of the index. This leverage can also be applied to inverse ETFs. Because they rely on higher leverage to achieve their targets, these funds can carry significant risk.
What is an inverse ETF?
Inverse ETFs are designed to profit when the underlying index falls in value. Also called ‘short’ or ‘bear’ products, they use financial instruments to deliver the opposite of the index’s daily return.
If the S&P 500 drops 1% in a day, an S&P 500 inverse ETF would aim to return a 1% gain. Investors often use these products to hedge against downturns or as short-term trading tools.
However, they come with a range of risks – including compounding risk, correlation risk, derivative securities risk and short sale exposure risk.
Please read before investing in these instruments
Inverse and leveraged ETFs are complex products generally suited for experienced investors and traders who actively monitor their positions and understand the risks involved.
Because these ETFs are built to achieve their stated objective on a daily basis, they may not be appropriate for long-term investing. As a precaution, we’ll ask you to confirm your understanding of the risks before placing an order.
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