Wednesday, December 29, 2010

Leveraged ETF

A leveraged ETF is an ETF which seeks to generate excess returns by using leverage. Common forms of leveraged ETFs are those which seek to return a multiple times the index return e.g. 2x the S&P 500, or 3 x the oil price. There are also short ETFs which aim to generate daily returns which move in the opposite direction, leveraged as much as 2-3 times. The impact of leverage on these sorts of investments is a magnifying effect i.e. higher up movements and deeper down movements.

Synonyms: Leveraged investment, Gearing

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