Its amazing to think how far investing has come, particularly in the financial market. Be it a commodity, company, or market, investors can bet on almost anything.
Over that last couple of years, exchange traded funds (ETFs) have become extremely popular because they give you the option to quickly buy and sell like a stock, but also built in diversity of a mutual fund. An ETF is essentially is an equity that tracks a basket of related stocks or a market/sector. An ETF can be traded like a stock, so traders are not required to invest money for a minimum of 6 months like a mutual fund.
While an ETF is great, what if we could take it even one step further? How about a leveraged ETF? A leveraged ETF is basically an ETF on steroids. Generally they track an index or sector and return 2 to 3x performance of the index its tracking.
For example, a popular ETF is one called FAZ, also known as Direxion Daily Financial Bear 3x Shares. The returns this ETF experiences is 300% inverse that of the daily performance of the Russell 1000 Financial Services Index.
So if the Russell 1000 ends down .33% on the day, then that means FAZ will end up around 1.2%.
You can see how enticing a leverage ETF is. While high returns could be easy to come by, the same could be said for lower returns. In our example, if the Russell 1000 ended up .33%, then that would be FAZ would be down 1.2%.
Overall, a leveraged ETF is a great investment vehicle to implement into your trading strategy. There are several leveraged ETFs that track all types of index and sectors. Its just a matter of finding out which ones work best for you.