ETF trading volume jumped from $142 billion in 2004 to $3 trillion in 2008, and settling around $1.4 trillion in June 2009, write Yan Zilbering and Donald Bennyhoff for IndexUniverse. Since 2008, nost of the ETF trading volume has been centered around a narrow selection of ETFs from the 850 or so available as of June 2009.

The top 20 most heavily traded ETFs by dollar volume amount to around 80% of total ETF trades. At the forefront are the most established ETFs with the most assets that are popular among investors of all types. The included ETFs account for about 50% of all ETF trading volume and they track the most common, broad-based domestic indexes:

• SPDRs S&P 500 (SPY): avg. daily turnover since Jan. 2008 is 43%
• PowerShares QQQ (QQQQ): avg. daily turnover since Jan. 2008 is 43%
• iShares Russell 2000 Index (IWM): avg. daily turnover since Jan. 2008 is 54%
• DIAMONDS Trust, Series 1 (DIA): avg. daily turnover since Jan. 2008 is 28%

There are also a group of nine narrowly focused sector and sub-sector ETFs, which represent around 16% of ETF trades, used to implement various strategies through the easy access of specific areas of the market.

• Financial Select Sector SPDR (XLF): avg. daily turnover since Jan. 2008 is 45%
• Energy Select Sector SPDR (XLE): avg. daily turnover since Jan. 2008 is 40%
• Oil Services HOLDRs (OIH): avg. daily turnover since Jan. 2008 is 54%
• SPDR Gold Shares (GLD): avg. daily turnover since Jan. 2008 is 6%
• iShares Dow Jones US Real Estate (IYR): avg. daily turnover since Jan. 2008 is 58%
• iShares MSCI EAFE Index (EFA): avg. daily turnover since Jan. 2008 is 4%
• iShares MSCI Emerging Markets Index (EEM): avg. daily turnover since Jan. 2008 is 12%
• iShares FTSE/Xinhua China 25 Index (FXI): avg. daily turnover since Jan. 2008 is 20%
• iShares MSCI Brazil Index (EWZ): avg. daily turnover since Jan. 2008 is 18%

The last set includes seven leveraged ETFs, which produce the multiple or inverse returns of the broad market or sector. This group is usually used for capitalizing on the short-term movements in the markets.

• Ultra S&P500 ProShares (SSO): avg. daily turnover since Jan. 2008 is 61%
• UltraShort S&P500 ProShares (SDS): avg. daily turnover since Jan. 2008 is 109%
• Ultra QQQ ProShares (QLD): avg. daily turnover since Jan. 2008 is 90%
• UltraShort QQQ ProShares (QID): avg. daily turnover since Jan. 2008 is 178%
• UltraShort Financials ProShares (SKF): avg. daily turnover since Jan. 2008 is 242%
• Direxion Daily Financial Bull 3X Shares (FAS): avg. daily turnover since Jan. 2008 is 128%
• Direxion Daily Financial Bear 3X Shares (FAZ): avg. daily turnover since Jan. 2008 is 241%

By looking at the data, it is noticeable that the more heavily traded ETFs traded at a higher turnover rate. ETFs tracking volatile sectors have been traded at even higher levels.

Max Chen contributed to this article.

What Are Leveraged and Inverse ETFs?

Put simply, leveraged and inverse ETFs are funds that aim to magnify the daily moves of the market. In a short double-leveraged fund, if the index goes up, then the fund goes down twice that amount. In a long leveraged fund, if the index goes up, the fund doubles that. The same principle applies when you’re talking about triple-leveraged ETFs, too.

For example, if the S&P 500 loses 2% on any given day, then:

• The Rydex Inverse 2x S&P 500 (RSW), which seeks to give 200% of the inverse daily performance of the S&P 500, would gain 4%.
• The ProShares Short S&P 500 (SH), which seeks to give 100% of the inverse daily performance of the S&P 500, would gain 2%.
• The ProShares Ultra S&P 500 (SSO), which seeks to give 200% of the daily performance of the S&P 500, would lose 4%.

Most leveraged and inverse ETFs have an objective to provide a daily multiple, for instance, plus or minus 200%. In a double leveraged inverse ETF, if the underlying index loses 1%, on any given day the ETF should in theory gain 2% that day. The funds have a daily target for a few reasons, according to ProFunds:

• It limits risk by preventing a case of too much leverage
• It mitigates risk of losing more than what’s in the fund
• Having an open-end fund that doesn’t rebalance daily, but provides a constant level of leverage for investors coming in after the first day isn’t possible

These funds can be appealing to investors with the risk appetite for several reasons:

• They can be used as a hedge if an investor believes the market is due for a short-term correction. If an investor is holding a position, but doesn’t necessarily want to sell it, then a leveraged or inverse ETF can be used to hedge against any potential loss.
• They can be used to capitalize on market movements. If an investor believes that the S&P 500 is due for a nice run, a leveraged ETF to maximize this movement might be just what the investor wants.

So, What’s the Problem?

Simply put, leveraged and inverse ETFs are not for everyone. We’ll get into the specifics later, but many people feel that these ETFs are too volatile, too risky and too complicated for the average investor to truly grasp. A few of the issues that concern the leveraged and inverse naysayers include:

• Compounding. Currently, all leveraged and inverse ETFs reset daily and generally track their respective indexes as they should. For example, on Aug. 12, the S&P 500 gained 1.2%. That same day, RSW lost 2.3%. On Aug. 13, and each day thereafter, RSW will reset and start over again. In stable markets, this system works well. Over time, however, an investor will see a leveraged fund drift from its benchmark because of the effects of compounding (holding the ETF for longer than its stated daily objective). The negative or positive effects of compounding were seemingly understood (or accepted) by investors, but the true potential of the effects of compounding were not realized until volatility reached record levels late last year.

The chart below is the one-day performance of RSW vs. the S&P 500:

• Volatility. What brought these ETFs to the attention of many investors (and even burned some investors) was the record volatility that the markets saw in 2008. Combine a few days of 500-point swings with a fund that’s designed to double or triple those movements, and you’re bound for a stomach-churning ride. A side effect of this compounded volatility was that these funds were suddenly veering from their benchmarks by wide margins. This may be a side effect of compounding in an extremely volatile market, as opposed to just a side effect of volatility.

For example, in 2008, the financial sector was one of the most ravaged. By the end of the year, plain-vanilla ETFs that tracked the sector were down 50% or more. When all was said and done, the iShares Dow Jones U.S. Financial (IYF) had lost 50.5%, while the ProShares UltraShort Financials (SKF), which tracks the same index, had gained 3.6%.
This chart shows the 2008 performance between SKF and IYR.

While throughout the course of the year, SKF increasingly drifted from its benchmark, the funds performed as advertised. That is, they correlated on a daily basis. As an example, on July 8, SKF gained 2.9% while IYR lost 1%.

FINRA’s Notice and ProShares’ Study

In July, the Financial Regulatory Authority (FINRA) issued a warning about leveraged and inverse ETFs, reminding brokers to be mindful of the suitability of products they offer their customers. FINRA also stated that these ETFs do track their targets on a daily basis, but fail to correlate over longer periods.

FINRA has since backed down from its statement directed at professional investors, but not before several brokerage firms banned the sale of these types of ETFs. Edward Jones, Ameriprise Financial, Raymond James and UBS banned them, while Morgan Stanley is reviewing them.

In August, both FINRA and the Securities and Exchange Commission (SEC) issued a joint statement aimed at retail investors, which said:

“These products are complex and can be confusing. Investors should consider seeking the advice of an investment professional who understands these products, can explain whether or how they’ll fit with the individual investor’s objective and who is willing to monitor the specialized ETF’s performance for his or her customers.”

These warnings are ultimately a good thing, because investors need to know the risks before they buy. The SEC and FINRA have clearly teamed up to boost the awareness effort. That doesn’t mean that leveraged and inverse ETFs are evil, though. There are warnings on Q-Tip boxes, too, but plenty of people use them every day without hurting themselves.

What Volatility Means to Performance

ProShares’ volatility study compared the standard deviation of the S&P 500 index constituents, as well as the standard deviation of the hypothetical 2x S&P 500 fund in each calendar year from 1999 to 2008. The hypothetical S&P 2x fund, in fact, is less volatile than 39% of the components of the S&P 500 index and the volatility in this fund is comparable to a number of other non-leveraged ETFs.

All in all, ProShares Managing Director of Marketing Steve Cohen says, leveraged and inverse funds have been around for years and it’s only now that they’re under the gun. “These are not new products. For 15 years, they’ve worked well.”

ProShares’ study also examined the impact of compounding when leveraged and inverse ETFs are held for periods longer than a single day. The common belief is that because of compounding, over time returns will be significantly lower than the one-day target. This, over time, chips away at a fund’s performance.

However, compounding works both ways. In both up and down markets, compounding can work in an investor’s favor. The negative impact is really evident in markets such as those in 2008-2009, when record volatility hit the funds, Cohen says. But you can’t just judge these products based on the last year in the markets.

Compounding turns two consecutive gains of 10% into an overall 21% return. It works on the downside in a 2x fund, as well: two consecutive days of 20% losses will translate into a 36% loss through compounding. ProFunds’ study revealed several interesting points about compounding:

• There is a high probability of approximating the one-day target over longer periods
• The shorter the period and the lower volatility of the index, the more likely approximating the target becomes
• The impact of compounding over the long-term is essentially neutral

Even over longer periods, there’s a generally high likelihood that an investor would get close to the 2x index return as illustrated in the chart below:

Are the Bans Justified?

We recently asked our readers whether they thought the regulatory scrutiny of leveraged and inverse ETFs was justified. While many investors may seem divided over the issue, our poll showed otherwise:

(click to enlarge)

Rick, an ETF Trends reader, left a comment on the poll in defense of the funds:

Nobody is forcing anyone to use them against their will. And I say this even though my last trade (FAZ) was a big loser. Hey, you can’t win them all. When the opportunity is right (for me), I plan to use a leveraged (or inverse leveraged) ETF again.

A similar poll conducted by Ignites showed results that were somewhat in line with our own. In their poll, 51% of respondents said that that regulators weren’t justified in singling out the funds. 27% said they were justified, and 23% said that they were justified, but that other financial products needed scrutiny, as well.

Facts vs. Fiction

There’s a lot of information about leveraged and inverse ETFs out there right now, much of it inaccurate, confusing or just wrong. We’ll sort it out for you:

Misconception: Leveraged ETFs Provide Returns of 2x and 3x the Annual Return of the Underlying Index

This myth seems to be one of the biggest misconceptions surrounding leveraged ETFs and one that may be at the root of much of the ongoing strife. Perhaps the result of poor marketing, the truth is no leveraged ETF or exchange traded note (ETN) seeks to provide a multiple of the annual return of an underlying index.

To date, all ETFs and ETNs seek to provide a multiple of the daily, weekly or monthly return of an underlying index and are unlikely to provide returns that match these multiples beyond each ETF or ETN’s respective time frame. This is because of the effects of compounding.

Misconception: Leveraged ETFs Increase Overall Portfolio Risk

While many investors and advisors view leveraged ETFs as speculative and risky, if used properly they may actually lower a portfolio’s overall risk. Leveraged ETFs and ETNs do not just allow for leveraged exposure, but can also provide an opportunity to access single exposure at half the price. For example, rather than going double-long with the PowerShares DB Commodity Double Long ETN (DYY), one could invest half of his/her intended investment and gain roughly the same exposure to commodities as the ETN’s non-leveraged counterpart, PowerShares DB Commodity Long ETN (DPU).

Misconception: Leveraged ETFs Are Too Readily Available and the Average Investor Will Hurt Themselves

Fact: What’s wrong with choices? We’re all adults here. Investors deserve to have options — and the more, the better. Give investors some credit. I know our readers on ETF Trends, and they’re a smart, educated, affluent bunch. It’s up to you and I to get the necessary education so we don’t shoot ourselves in the foot.

Furthermore, the fund companies that issue leveraged ETFs readily admit that their funds aren’t for everyone. They’re very open about the risks. As much as the fund companies want to make money, they also want their investors to be successful . It behooves them to help investors do that. It’s all about understanding risk and knowing what you’re getting into with these funds.

Another point to consider is that it’s hard to know exactly who’s buying these funds, but based on the volume being traded, it would suggest that it’s largely institutional. It’s true that anyone can buy them, but the big players are likely the ones buying them at this point, so their accessibility is probably moot for now.

Misconception: They Exist So Investors Can Sidestep Margins Rules

Fact: It’s really not that sinister. Before leveraged ETFs, investors had to borrow from a broker to short with credit, then have a required amount of reserve capital before doing so. These limitations don’t exist with leveraged ETFs, but I doubt that most investors are arching their eyebrows and laughing wickedly at the thought of sidestepping margins rules.

The less exciting truth is that these funds have simply made it easier for the average investor to employ a strategy he or she might not have had access to before. Additionally, margin rules were set up to protect banks, not investors, so this argument doesn’t hold much water. Investors can only lose what they put into these funds.

Misconception: Leveraged Funds Are Bringing the Market Down

Fact: There are a lot of things making it difficult for the government to save financials, and it isn’t right or fair to put the blame on the shoulders of leveraged ETFs. Trading and interest in them has undoubtedly increased, but billions of shares trade hands each day in funds of all types.

A small fraction of that is leveraged ETFs, and they seem to be getting a far greater percentage of the blame. One industry expert points out that if you look at the net assets in both the long and short funds, the levels are net long in the majority of the fund pairings most of the time. If anything, they’re having a positive effect on the market.

Misconception: They’re Not Buy-and-Hold Investments

Fact: Well, that is true. They’re not. But this isn’t exactly news – many leveraged ETF investors have been able to successfully hedge their portfolios for short-term periods. These ETF providers readily acknowledge that these types of funds are meant to hedge risk, not funds around which one should plan their retirement.

Misconception: Leveraged ETFs Just Don’t Work

Fact: Leveraged ETFs operate exactly as they should— they reset daily (or weekly or monthly). Over a period of time, you’re going to see internal compounding that will affect the returns. This isn’t a flaw in the funds: this is a mathematical fact that is impossible to avoid. If you invested in a leveraged ETF over a period of months and the market went down 20%, a 2x short leveraged ETF wouldn’t go up exactly 40%.

The SEC is ultimately going to find that there’s nothing illegal or underhanded about these products. They’re doing what they’re supposed to do. They’ve proven immensely popular, and the SEC would not impose limits or consider doing away with such innovative products.

Questions to Ask Before You Buy

Since not all leveraged and short ETFs and ETNs are created equal, it is important to understand the structure and risks specific to each fund. A few questions to ask of a leveraged fund are:

• Does it offer suitable long- or short-term exposure?
• What are the risks inherent to the fund and the underlying space in which it invests?
• How are the futures contracts purchased?
• See “10 Things to Consider When Picking an ETF” for more on picking ETFs.

Watch Tom Lydon discuss leveraged and inverse ETFs on CNBC!

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

The power of this recession has made much of the market incomprehensible and the market has long since stopped making sense. The fear levels are at code red for investors. Is there a way to gauge what you might want to get back into once the market looks slightly tempting again?

Gary Gordon for ETF Expert ponders where an investor is to go when all the traditional market readings and signals are all topsy-turvy.

• Gordon feels that a small rally of any kind would bolster S&P Pharmaceuticals (XPH) which could be what is a paradox of “smart risk.”
• Other areas that are pretty beaten-down could be identified by looking at the performance of UltraShort funds. Among the ones that made a killing in February are ProShares Ultra Short Consumer Goods (SZK), ProShares UltraShort Materials (SMN) and ProShares UltraShort Financials (SKF).
• There could be some value in the technology sector, too. Other areas of this type of smart risk could be found in the short and ultrashort sector funds. Semiconductors are collectively trading at a price-to-book of just 1.3.

The market is in serious need of fixing, and chances are, we’ve still got some surprises remaining. Whatever pops up down the line, if it’s these types of funds or something else, mind those trend lines and just stick to the strategy.

Investors have a cornucopia of ETFs to choose from with 843 exchange-traded products currently available, writes Ron Rowland for Seeking Alpha. There are some oddballs that have trading sessions with zero volume and high bid/ask spreads. But there is also a select group known as the “ETF Billion Dollar Club” that has risen above the crowd in providing more than $1 billion per day in trades.

The average daily value traded (ADVT) is a good indicator for liquidity. It is the volume multiplied by price, and is sometimes referred to as $ Volume. Higher liquidity means there will most likely be someone out there willing to take the other side of a trade.

There are 17 members in this exclusive club as of February, 2009:

1. SPDR S&P 500 (SPY): ADVT of $30,767,683,584
2. PowerShares QQQ (QQQQ): $5,251,502,080
3. ProShares UltraShort Financials (SKF): $4,627,046,400
4. ProShares UltraShort S&P500 (SDS): $4,580,779,008
5. iShares Russell 2000 (IWM): $3,093,236,480
6. DIAMONDS Trust (DIA): $2,625,997,824
7. SPDR Gold Trust (GLD): $2,470,299,648
8. SPDR Select Sector Financial (XLF): $2,082,540,544
9. ProShares Ultra S&P 500 (SSO): $1,905,811,200
10. SPDR Select Sector Energy (XLE): $1,795,240,832
11. iShares MSCI Emerging Markets (EEM): $1,746,615,296
12. ProShares UltraShort Real Estate (SRS): $1,577,850,496
13. ProShares UltraShort QQQ (QID): $1,458,607,744
14. iShares Dow Jones U.S. Real Estate (IYR): $1,244,349,184
15. iShares MSCI EAFE (EFA): $1,222,589,568
16. Direxion Financial Bear 3x Shares (FAZ): $1,221,666,944
17. United States Oil Fund (USO): $1,034,414,528

Short ETFs are gaining some positive ground in the early part of 2009 and they may complement a portfolio strategy if properly used, writes Ron DeLegge for ETF Guide.

But it is noted that a potential investor needs to fully comprehend how the products work. Because of expense ratios, tracking error market forces, and the product structure, the performance of short ETFs would almost never mirror the percise opposite returns of their corresponding indexes.

Momentum investors aim to capitalize on the continuance of existing trends in the market, and believe that large increases in the price of a security will be followed by more gains.

If this is your style, DeLegge notes the following ETFs:

• Short S&P 500 ProShares (SH): Up 2.6% in the last month. The ETF is designed to show the daily inverse performance of the S&P 500 stock index. In the last 52 weeks, the S&P has been battered by its exposure to financial and technology stocks. The short ETF tries to deliver twice the opposite daily performance of the Dow Jones U.S. Financial Index. This index includes stocks of banks, insurance companies, and securities brokers.

• UltraShort Financials ProShares (SKF)

• UltraShort Real Estate ProShares (SRS): Up 3.5% in the last month. This short ETF tries to translate twice the opposite daily performance of the Dow Jones U.S. Real Estate Index.

Our strategy notes that it’s time to get out if an ETF falls 8% off its high or falls below the 200 day-moving-average. This way losses are kept to a minimum. When a fund crosses above its 50-day moving average, put 25% of the value into your portfolio. When the fund goes up 5%, put another 25% in. It is important to take note that a trend is always in the making somewhere.

The market’s volatility has been amplified in the last hour or so of the trading day for much of this year.  A report published by Credit Suisse, indicates that an average 26.2% of trading volume in the S&P 500 stock index took place in the final hour of trading and 17.1% in the last 30 minutes. This surge in trading has come amid big swings in prices of 3% to 4% in the last hour, states Tom Lauricella, Susan Pulliam, and Diya Gullapalli of the Wall Street Journal.

Some believe that volatility is caused by the use of leveraged ETFs. These ETFs, shares of which are created by using swaps or options, offer an upside or downside which is two or three times that of the actual fund.

There are currently more than 100 such ETFs to choose from and are one of the most actively traded securities in the market.  They are used by traders, hedge funds, and the average Joe Blow.  In fact, over the last three months, ProShares UltraShort S&P 500 (SDS) has been averaging a trading volume of 60 million shares per day and ProShares UltraShort Financials (SKF) averaged a whopping 27 million shares per day.

Others believe that ETFs have no direct impact on this volatility. Instead, it can be accounted for because of redemptions in large mutual funds and the unwillingness of market makers and traders to keep open positions overnight.

In the volatile month of September, it was quite common to see end of the day buying and selling of ETFs, determinant on whether or not the market was falling or gaining ground.  It is safe to say that ETFs play a pivotal role in the market.

Simon Maierhofer of ETF Guide recommends five ETFs, all high beta ETFs giving an upside potential in exchange for an extra dose of volatility that are at a discount.  While there are some interesting picks and these funds may show potential in coming months, this differs from our strategy of determining when we should be in.

We still suggest using the 50-day and 200-day moving averages to determine when to be in or out, rather than attempting to call a bottom that may not be there yet. We are still in a very volatile market, after all.

The first pick is the PowerShares WilderHill Clean Energy Portfolio (PBW) because of its higher than average beta of 1.90, its composition of companies that focus on reducing pollution and carbon from current energy sources, and the terrible performance of the sector over the past six months.

The second pick is the Market Vectors Global Alternative Energy ETF (GEX), in the same industry as PBW, because it consists of companies focused on generating power from alternative sources and is selling at a 75% discount from its pre-summer prices.

The third recommendation is the United States Oil Fund (USO) based on the disposition that $50/barrel crude oil will serve as a springboard for oil prices to climb once again.

The fourth is ProShares Ultra S&P 500 ETF (SSO) because of the low levels of the Dow and the objective of the ETF to deliver twice the daily performance of the S&P.

The last recommendation is to lighten up on short ETFs like the ProShares UltraShort Financials (SKF) and ProShares UltraShort Real Estate (SRS), because they have dropped as much as 80% in short periods of time and chances are that they will be worth less in a month than today.

Since its recent move to the NYSE, the Financial Select Sector SPDR (XLF), has been the most actively traded stock at the exchange.  With the recent tumble in Citigroup (C) stock, and the toll that it took on the ETFs long the financial sector, XLF has traded at a 52-week low two days in a row.

Some optimists believe this makes XLF very attractive, driving trading volatility and volume up.  In 2008, assets in XLF have plummeted by nearly $3 billion, fueling the trading volume to soar by 80% for the year, resulting in outstanding shares of 1.2 billion and a daily average trading volume of 255 million shares, states Eric Rosenbaum of Index Universe.

The reasons behind the dramatic drop in asset value is fairly well established, and the dramatic increase in trading volume can be attributed to exposure, allowing investors to cash in on market volatility in a manner less risky than trading individual stocks.

These ETFs are clearly doing what they’re supposed to do as investors have rushed to take advantage of market volatility this year.

Financial Select Sector SPDR (XLF): down 65.6% year to date.

ProShares UltraShort Financials (SKF): up 145.5% year to date.

In rough markets, the ability to go short or long either 200% or 300% of an index’s daily value can prove to be a useful trading tool. But these types of funds should be used with caution, as with any investment, since they amplify market movements. In these times of higher volatility, that means big swings one way or the other than can catch an investor off guard if they aren’t paying attention.

It seems like for most of this year, long and short funds have been perched at the top in terms of daily performance. They can also give a quick snapshot of what sectors are feeling pain and how the markets are doing in general. Seeing a cluster of shorts sitting at the top of a list of funds ranked by daily, weekly or monthly returns tells you that the markets are hurting right now.

For the last five trading days, among the funds at the top are:

• Rydex Inverse 2x S&P Select Sector Financial (RFN)
• ProShares UltraShort Financials (SKF)
• ProShares UltraShort Real Estate (SRS)
• ProShares UltraShort SmallCap 600 (SDD)
• Rydex Inverse 2x Russell 2000 (RRZ)

Not all funds are right for every investor, so investors need to decide what is right and what works for them while using caution, and supplementing that with some education and research. If you think these funds might be right for you, do a gut check and make sure your risk profile fits.

We advocate sticking to a strategy of considering only those funds that are above their long-term trend lines (the 200-day moving average). Once they fall below that mark or 8% off the high, it’s time to let it go.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

MarketWatch reports that Morningstar Analyst John Gabriel said that key market events, such as limits on short-selling, have impacted a few funds, but have not changed the overall picture for ETFs. Risks of certain funds, such as the ProShares Ultra Short Financials (SKF) makes them issues that investors should avoid right now.

Gabriel also says that the market for exchange traded notes (ETNs) is scary right now, and that investors can get the same kind of exposure to some areas ETNs cover via an ETF instead, minus the credit risk.

We respectfully disagree on both counts. One of the great things about the ETF and ETN market is the wide range of choices and options offered to investors.

No ETF is one-size-fits-all. Investors need to decide for themselves what works with their portfolios and what doesn’t, and this is no less true with leveraged ETFs.  Any kind of fund deserves careful consideration and use of caution. Leveraged funds and ETNs are merely another tool in the shed for investors.

As far as ETNs, while there is credit risk, this does seem to be under control right now.

No matter what you invest in or what your risk level happens to be, having a stop-loss point will protect you on the downside.