These funds can be appealing to investors as a hedge against any potential losses. Say you have a holding but don’t really want to sell it and you think the market is due for a short-term correction, then a leveraged or inverse ETF can be used as a hedge.
They can also be used to capitalize on market movements. If an investor believes the market is due for a nice run, a leveraged ETF could be used, although this is an aggressive trade. And as the financial crisis showed, leverage can be a dangerous thing. [What About Leveraged and Inverse ETFs?]
For more information on leveraged funds, visit our leveraged ETFs category.
Max Chen contributed to this article.