Understanding the Basics of Leveraged ETFs | ETF Trends

The recent market volatility has given traders a chance to profit from market swings with leveraged and inverse exchange traded funds. However, these high-octane ETFs can magnify losses as well, which is why they’re designed for day traders rather than buy-and-hold investors.

The assets under management in leveraged exchange traded products remains high at $35 billion, with short and ultra-short products accounting for about $22 billion of the total, according to a recent report from Barclays Capital. There is about $1 trillion invested in all ETFs.

Leveragde exchange traded funds and notes allow investors to trade on strategies that return two or three times the normal long or inverse performance of an underlying benchmark.

One of the largest leveraged ETFs is an inverse fund that bets against Treasury bonds: ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT). [Inverse Treasury ETFs in Focus on Renewed Bond Bubble Talk]

During volatile markets, like now, investors may capitalize on the quick market movements, especially with through leverage strategies that would provide a multiple of the normal returns. [‘Spread’ ETF Rallies on Higher Gold Prices, Stock Weakness]