Before getting involved with inverse and leveraged ETFs, traders should understand how these products work. Even SH, which is not leveraged, can be subject to the effects of daily compounding.
“Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period,” according to ProShares. “These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings as frequently as daily.”
The triple-leveraged SPXS is down nearly 9% this year, reminding investors that inverse and geared ETFs are not intended to be more than short-term trades.
For more on leveraged & inverse ETFs, please visit our Leveraged & Inverse Channel.