The primary purpose a trader will want to use leveraged ETFs is to amplify his or her returns. Leveraged ETFs will typically carry two or three times the returns of the index, depending on the product.
So if an index tied to a 2x leveraged ETF moves 1 percentage point, a leveraged ETF trader will earn 2 percent. If it moves 2 percentage points, the trader will earn 4 percent and so on.
The amplified return is due to a leveraged ETF using futures contracts as its underlying assets. The futures contract is an agreement to purchase or sell assets at a fixed price, but the assets are delivered at a later date.
For more information on leveraged ETFs, click the video below:
