Leveraged ETF

Filed Under » , , ,
Dictionary Says

Definition of 'Leveraged ETF'

An exchange-traded fund (ETF) that uses financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the Nasdaq-100 and the Dow Jones Industrial Average. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio. 
Investopedia Says

Investopedia explains 'Leveraged ETF'

A leveraged ETF does not amplify the annual returns of an index; instead it follows the daily changes. For example, let's examine a leveraged fund with a 2:1 ratio. This means that each dollar of investor capital used is matched with an additional dollar of invested debt. If one day the underlying index returns 1%, the fund will theoretically return 2%. The 2% return is theoretical, as management fees and transaction costs diminish the full effects of leverage.

The 2:1 ratio works in the opposite direction as well. If the index drops 1%, your loss would then be 2%.

Related Video for 'Leveraged ETF'

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Exchange-Traded Fund - ETF

    A security that ...

  2. Index Fund

    A type of mutual ...

  3. ProShares

    A division of ...

  4. Biotechnology Industry ETF

    An ...

  5. Leverage

    1. The use of ...

  6. Transaction Costs

    Expenses ...

  7. Ultra ETF

    A class of ...

  8. Inverse ETF

    An ...

  9. Actively Managed ETF

    An ...

  10. Silver ETF

    An ...

Articles Of Interest

  1. 5 Reasons Why ETFs Work For Young Investors

    ETFs contain all of the characteristics that make them the perfect investment opportunity for young investors.

  2. Dissecting Leveraged ETF Returns

    These funds are a relatively new product to most investors, but they could be what you need for increased returns.

  3. Leveraged ETFs: Are They Right For You?

    This specialty vehicle offers dramatic results, but can also magnify risk.

  4. Ultra ETFs: The Ultimate Addition To Your Portfolio?

    Ultra ETFs can add huge returns to your portfolio, but there's a lot of risk and volatility involved with these leveraged ETFs.

  5. Introduction To Exchange-Traded Funds

    Get into ETFs and enjoy the benefits of a mutual fund with the flexibility of a stock.

  6. The VIX: Using The "Uncertainty Index" For Profit And Hedging

    Learn the best ways to profit and hedge using the Chicago Board Options Exchange Market Volatility Index.

  7. Exchange-Traded Funds (ETFs)

    This vehicle combines the diversification of a mutual fund with the flexibility of a stock. Learn more about them here.

  8. 4 Ways To Use ETFs In Your Portfolio

    To take full advantage of these vehicles, you need to know how they can fulfill certain strategies.

  9. Inverse ETFs Can Lift A Falling Portfolio

    These funds can reduce your exposure to market risk or enhance portfolio performance.

  10. An Inside Look At ETF Construction

    If you're an investor who likes to understand how and why your investment products work, this article is for you!
Sponsored links

comments powered by Disqus
Hot Definitions

  1. Love Money

  2. Shark Watcher

  3. Judo Business Strategy

  4. Dogs Of The Dow

  5. Chinese Hedge

  6. X-Mark Signature

Recommended
Loading, please wait...
See More »
Trading Center