Leveraged ETF

A leveraged ETF is designed to deliver two or three times the daily return of an underlying index. If the index rises 1% in a day, a 2x product rises 2%.

The word daily is the crux. The multiple is maintained only over one day, and across many days the result diverges substantially — the fundamental reason these are unsuited to long holding.

Repeated up-and-down movement compounds losses. If the index rises 10% and falls 10% back to where it started, the 2x product ends below its starting value. This is called volatility decay.

Sideways markets are especially punishing, with the index flat while the leveraged product erodes continuously. It is a tool for short use when direction is clear, not an asset to hold.

Fees are higher than on ordinary ETFs and the structure is complex because derivatives are involved. Check the multiple, the underlying index, and how the exposure is maintained before buying. The same principle applies to inverse products. Funds betting on declines are also reset daily, so holding them long produces results that diverge from expectations.