In this section, we will be presenting information on leveraged ETFs and some examples of how you can trade online from home via CFDs. First, we would like to introduce this concept first to make it easier for those who are not very familiar with this type of financial instrument to understand it. ETFs (Exchange Traded Funds) are specific investment funds that are tradable in the same way as shares. These funds include securities of the same type and are usually categorized according to this factor. For this reason, the category of leveraged ETFs refers to leveraged ETFs.
What is a leveraged ETF?
Many simple ETFs are designed to replicate the performance of a given index, although they do not contain exactly the same number and variety of securities as that index. Leveraged ETFs, on the other hand, are designed with the objective of offering their subscribers a performance equal to two or three times that of the underlying index, or twice or thrice the opposite of the same performance. For this reason, you may find Leveraged ETFs of the 2X or 3X type, which respectively aim to offer double or triple the performance of the underlying asset. Based on the ETF description, it is always possible to ascertain whether these multipliers refer to the result or its opposite. The result that aims at the opposite of performance makes it easier to understand why this financial instrument allows you to obtain results from both the rise and fall of the underlying asset.
Leveraged Natural Gas ETFs
Among the ETFs of this type and among the most requested ones are the Leveraged Natural Gas ETFs, i.e. funds with leverage dedicated to natural gas. These funds include various types of securities relating to the natural gas extraction and transportation sector. Similar types include the Leveraged crude oil ETFs, brent or otherwise linked to a specific branch of the energy sector. One example is the Direxion Daily Energy Bull 3X Shares (ERX), the bullish part of the Direxion Daily Energy Bull and Bear 3x Shares, which aims to achieve a 300% performance or 300% inverse of that of the S&P Energy Select Sector Index which invests in areas such as oil, oil pipelines and coal.
Leveraged S&P 500 ETF
Other popular types of leveraged ETFs are those that refer to the S&P 500 index, the leading American stock index. An example of S&P 500 leveraged ETFs is the Direxion Large Cap Bull 3X Shares (SPXL), which refer to the Direxion Daily S&P 500 Bull and Bear 3x Shares. The latter is a leveraged ETF that seeks daily investment returns, gross of expenses and commissions, which range from 300% or -300% of the performance of the S&P 500 index.
How to trade Leveraged ETFs online
There are two ways to trade leveraged ETFs: through the manager’s website or CFDs. CFDs, in particular, are more practical, less expensive and allow you to trade online from home or from a mobile device. CFDs are financial instruments that passively replicate the price of an underlying asset. In the case of CFDs on a particular Leveraged ETF, the quotation of the CFD will be given by the quotation of the Leveraged ETF itself, with the addition of a small percentage of spread (the only form of gain by the broker). CFDs are also always leveraged instruments. For this reason, you can trade on a much larger number of ETFs than you could do with traditional methods for the same budget. Even small amounts are sufficient for CFD trading. With the CFD trading offered by Plus500, the risk is limited to the deposited capital. However, in order to reduce risk, we recommend that you visit our Stop Loss article as part of our CFD course. With Stop Loss orders the trader or user can set a maximum loss in percentage terms and order the software platform to automatically close the position at a loss once the set “alert” level is reached.
- Direxion Daily Financial Bull 3X Shares
- Direxion Daily Small Cap Bull 3X Shares
- Direxion Daily TZA
- Direxion Large Cap Bull 3X
- Direxion Daily Energy Bull
- Direxion Daily Financial