Most traders are familiar with ETFs (or exchange-traded funds) and know that they can be great ways to trade or invest in the stock market. However, traders know much less about triple leverage ETF. Triple ETFs allow traders to increase their potential returns in the market without the need to use margins, options, or futures.
Leveraged exchange-traded funds (ETFs) are designed to be more efficient than retaining trading positions in a typical ETF. Leveraged ETFs are designed to provide long-term or short-term exposure with metrics such as the S&P 500 Index or Nasdaq 100, while others are designed to move along specific industry segments or groups.
ETF stocks are traded like stocks on the stock exchange. ETFs allow individual investors to benefit from economies of scale by splitting management and trading costs across large numbers of investors. The first leverage ETFs were introduced in the summer of 2006 after almost three years of review by the US Securities and Exchange Commission (SEC).
Leverage ETFs often reflect a hedge fund, and the fund’s capital, in addition to the investor’s equity, provides a higher level of investment exposure. Typically, a leveraged ETF maintains an index exposure of $2 or $3 for every $1 invested capital which is named a 3x ETF trading strategy. The goal of the fund is that in the future the value of investments made with borrowed capital will be more than the cost of capital itself.
What is an ETF?
There is currently a wide range of ETFs designed to consider for 3x ETF trading strategy as follows:
- Stock Market Index – S & P500 (Ticker SPY)
- Commodity – Gold (Ticker GLD), Silver (Ticker AGQ)
- An Industry – Global Telecommunications Division (Ticker IXP)
- Stock Size – Small Capital Value (Ticker VBR)
- One country – Russian Ticker (Ticker RUSL)
One Currency – British Pound Trust (Ticker FXB)
Futures – S & P500 Short Term Futures (Ticker VXX)
ETF trading like a stock on the open market; this is beneficial because it means a good level of liquidity and reduced transaction costs. Like any financial transaction, you need to know the features of the tool you are using.
ETF Traders or Investors
To enter the trading arena, stock market experts know their game back and forth. In the stock market, two types of customers enter the market every day. The first is investors, who usually say they are in the market for the “long term”, and then there are traders who are in the market every day and are constantly trading with price fluctuations from the top to the bottom, seeking the quick profit.
They are 2 entirely diversified beasts altogether:
They use their basic research to select potential stocks. They try to fully understand the business in which they are investing. With that, they gain a certain level of understanding and believe that the business model of the company in which they invest is strong. They read and publish all the magazines to make sure they are up to date with the latest news wherever it is available. They may even have a technical background, know where their stocks are on the chart, and try to buy, accumulate, and hold stocks over a long period of time (2 to 5 years).
Perhaps a professional trader who is technically smarter and shorter than the two lives in a world where minutes, even seconds, can seem like a lifetime. With good financing, they usually seek to profit from the slightest price difference, trading day in and day out, sometimes tens of times a day, lowering one moment, the next moment, to generalize profits very quickly, and continue to the next trade. In some ways, they are very compelling, constant, and perhaps even obsessive about day-to-day, hour-to-hour price changes in the stock market.
Traders have been living and breathing in the market every day for years, and they work about 60 to 70 hours a week from home in the mountains of New York during their retirement. They work with the defined goal of being right, much more than wrong.
They constantly update my charts on paper with a mechanical pencil throughout the day, search for the exact moment when there is a price break, and then fully invest to trade the opportunity, and Enter and exit with maximum profit, for the shortest time available risk.
As a trader, they use 3x ETF trading strategy to trade in the market every day, investing in both long and short market sides, depending on the defined trend.
Why you should utilize 3x ETF trading strategy?
The answer to the question is surprisingly simple. This is about the potential for profit that you can get in the fastest time, just to be right about the movement of stocks or indices just in terms of your market. Instead of waiting for days or weeks to prove it true, in the world of 3x ETF trading strategy, this reward can be achieved in seconds or minutes after purchase.
Think about it for a moment and then realize that the deception of investing such vehicles every day is at your fingertips in the stock market.
How do 3x ETF trading strategy?
They are what they say. A 3x ETF trading strategy is a device that is calibrated 300 percent or three times the increase or loss of a stock price or index. If the Dow rises 1%, the ETF 3X Leveraged returns 3%. However, unlike a mutual fund that rewards the investor with its closing price every day, ETFs can be traded around the clock in some cases, allowing the trader to trade on a daily basis. Therefore, it is possible for a trader to achieve significant returns in a very short period of time. Here a deception happens. However, cheating such a vehicle carries a significant risk.
Risks of 3x ETF trading strategy
The risks of triple leverage ETFs can easily outweigh the risk of many traders as the returns increase up to 300%, the potential of LOSS quickly becomes apparent if one makes a mistake in buying. Your assumption of a quick profit can turn into a very leverage loss, not only potentially causing a huge reduction in the trader’s account, but also limiting the capital that can be used for other potential money-making trades.
Simply put, you have to enter a position at the time of OPTIMUM and thus exit the transaction in order to be able to trade these types of vehicles successfully. No matter how talented you think, daily price fluctuations in the market may cause you to completely confuse it in the short term, and we are talking about a few minutes, and because of the 300% move, the price may be immediate. Get to your STOP, just look at it, then go back, and fly to where you thought it was going. You stop and stare at the screen and realize that the achievement you anticipated happened without your participation.
The lever actually works both ways, and because of that leverage, it is not recommended that you run these 3X ETF trading overnight. This is due to overnight gaps that often occur during the trading week.
Let us say that one indicator in New York falls 1% per day, if you kept the 3 X bullish ETF overnight, your immediate return in the open market would be 3%. Imagine a 3% reduction overnight, only for 24 hours.
That’s why experts recommend limiting the time you run a triple leverage ETF to just when you are almost certain to continue the next day. Position size is critical to the success of 3x ETF trading strategy.
The 3x ETF trading strategy is a simple, versatile investment strategy that includes short-sale long pairs of triple reverse ETFs for specific markets such as natural gas, oil, biotechnology and more. Due to the fees and the nature of triple leverage ETFs, in the long run, the triple ETF loses its value. Therefore, short-selling ETF 3 leverage is a statistically safe condition. This simple long-term strategy on the diverse set of 3-fold ETFs outlined in this paper has shown an average return of 36.5% over the past five years after brokerage fees.
Does 3x ETF trading strategy really worth it?
This strategy comes with considerable risk and are not appropriate for long-term investing. Compounding can cause large losses for 3x ETFs during volatile markets, such as U.S. stocks in the first half of 2020.
Why not keep leveraged ETFs trading for a long time?
One of the disadvantages of leveraged ETFs is that the portfolio is constantly balanced, which comes with additional costs. Experienced traders who easily manage their portfolios will have better services by directly controlling their exposure and leverage ratio, rather than through leveraged ETFs.