Thoughts On leveraged ETFs?

[dtk]

1st, I did a forum search and came up with only 1 hit.


- I've been trading off and on for about 5 years. But have gotten more serious about it this past year. I would call myself a swing trader with 70% securities, 30% of my portfolio in mutual funds.

I've been reading about leveraged ETFs for about 6 months (and watching some proshares etf's closely) and learned about most of the positives and negatives but have yet to go for one. I was curious what you all thought of these guys and if you could share some of your personal experiences.

*I am interested in short term swing trading with ETF's

[doublereed]

http://www.onlinetradersforum.com/sh...d.php?t=113518

Short term they are OK but not long term.

[jlcnuke]

99% of traders will tell you that leveraged ETF's are daytrading tools and anyone holding them overnight is not managing their risk:reward properly due to the inherent volatility in these ETF's.

IMO, swing trading these is a speculation play and should only be done on fairly to very confident anticipation of news that will come out the next day. Without a very clear understanding of why you predict a certain direction in the market/ETF sector then it's a coin flip on whether you make or lose money. I have played these as swings (SRS and FAZ mainly) but I don't recommend it as the % change overnight can be great and the market doesn't always do what we expect (for instance I wasn't expecting GDP to beat today but it did).

Swing trading leveraged ETF's is very high risk trading and if you're currently 70/30 equity/mutual funds I somehow doubt you would be comfortable with the losses that can occur overnight in these.

[tbonetrader]

I only trade TNA, so I can not speak for other leverages ETF. However from what I understand is that leveraged ETFs have to reset at the end of each day. Which means if the market moves up they have to get more exposure to whatever index they represent which means they have to buy after the market has closed at an increase in price which means overall they have to buy into strength and sell into weakness. Again I only swing trade TNA and if you look at it since its inceptions if you were to have bought and held it would more then doubled the Russell 2000 index. If you were lucky and could have bought at the very bottom of the market it was up approx 242% compared to approx 68% that the Russell 2000 was up. So I know most people say not to hold them which I agree if you need the money quickly because these things swing huge quickly. But if you buy and can hold it long term in an IRA or 401k I don't see the harm as of yet. If anyone else has any other info please chime in as I would like some more knowledge because every broker I ask says no they are not good for investing only trading and let me have your money so I can invest it for you. Yea right

[LongArm]

Originally Posted by tbonetrader

...Again I only swing trade TNA and if you look at it since its inceptions if you were to have bought and held it would more then doubled the Russell 2000 index...

Not sure what YOU'RE looking at, but the chart below shows the Russell 2000 up 6% while TNA is DOWN -31% since inception:



Leveraged ETFs are great if you can get in while the market's on a steady trend. That's when the compounding works in your favor. They're bad with volatility, i.e. up-and-down, because the compounding then works against you. The longer the time frame, the more up-and-down you'll have and therefore the more price decay there will likely be. Those who say these are bad for long-term trading/investing are 100% correct. The chart above says it all, no?