Leveraged ETFs are exchange-traded funds that use a combination of derivatives and debt instruments to double or triple the movement of an underlying asset or index that it tracks. Owing to their leveraged nature, these funds are incredibly volatile and risky.

Leveraged ETFs have grown in popularity with the day trading crowd because the funds can generate returns very quickly provided of course, that the trader is on the right side of the trade.

In this article, we will look at some of the most popular leveraged ETFs on the market and discuss strategies for minimizing losses when using these ETFs. Be aware that while all trading carries risks, leveraged trades are far riskier.

These funds should only be tackled by an experienced trader with a stomach to handle losses. Dissecting Leveraged ETF Returns. First and foremost, before trading these volatile instruments, you must be aware of what they track.

With two-to-three times the potential of upside and downside moves, even a slight miscalculation on their underlying properties can wreak havoc on an otherwise winning trade. Below are some of the most popular leveraged ETFs on the market and the asset or assets that they track. Even if you are planning on closing your positions at the end of the trading day, it would be wise to get a brief understanding of the fundamental factors that can impact these ETFs.

Although technical analysis will probably be the main tool in your arsenal, fundamental factors from around the world, especially events that happen overnight, can dictate the direction of the trend the following morning.

Below, we'll discuss the fundamental factors that can affect some of the most popular leveraged ETFs. Economic Indicators To Know. As such, they are affected by moves in oil prices due to geopolitical events and North American supply and demand. Another important information release is the Baker Hughes rig count , published every Friday at noon central time. Brent Blend, WTI and Dubai and Uncovering Oil And Gas Futures.

As such, they are susceptible to the many macroeconomic factors that affect the U. These can include the following:.

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However, as they are concentrated in the biotech sector, keep an eye out for results from U. Food and Drug Administration clinical trials, mergers and acquisitions of biotech firms and earnings reports from the big-name biotech companies.

These include, Gilead Sciences Inc. GILD , Celgene Corp. CELG , Amgen Inc.

AMGN , Regeneron Pharmaceuticals Inc. REGN and Biogen Inc. Direxion Daily Emerging Markets Bull 3x EDC and the Direxion Daily Emerging Markets Bear 3x EDZ seek to replicate three times the movement of the MSCI Emerging Markets Index. Although a guide on trading the MSCI Benchmark could fill a book, keep an eye out for overnight swings in commodities, the Asian and European markets, forex markets and economic news coming out of the index's constituents the slowdown of the the Chinese economy and the recent yuan devaluation is a prime example , as these factors can heavily dictate the direction of the next trading day.

A Degree Analysis and How A Strong U. Dollar Can Hurt Emerging Markets. Unlike most guides on trading, this one will feature no strategies on technical analysis owing to its subjective and after-the-fact nature. I will assume that the reader has already built a familiarity with the basic principles of technical analysis and can adapt those techniques to trading leveraged ETFs.

Here are a few additional tips:. Leveraged ETFs are not for the faint of heart. Traders who can stomach the volatility can realize large gains or losses on their positions very quickly. That said, when trading these wild instruments, be sure to check the underlying asset that they track so that you can have a sense of direction they will take each trading day. Furthermore, traders who bet on these funds should have an adequate risk management strategy in place and be ready to close out their positions at the end of each market day.

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. How to Day Trade Using Leveraged ETFs By Zaw Thiha Tun September 21, — 9: Know Your Components First and foremost, before trading these volatile instruments, you must be aware of what they track.

These can include the following: Emerging Markets 3x Direxion Daily Emerging Markets Bull 3x EDC and the Direxion Daily Emerging Markets Bear 3x EDZ seek to replicate three times the movement of the MSCI Emerging Markets Index. Tips on Entering and Exiting Trades Unlike most guides on trading, this one will feature no strategies on technical analysis owing to its subjective and after-the-fact nature.

Here are a few additional tips: Owing to their volatility, the trader is recommended to scale into a trade and to adopt a disciplined approach to setting stop losses. Do Not Hold Shares Overnight: Don't hold positions overnight as global events can obliterate your trade. Your stop losses will not protect you in such instances. Either reduce positions or close them out entirely at the end of the day.

Follow Paul Tudor Jones. Know the Key Dates. Every week or so, there will be a pivotal event that can affect these funds. For example, the oil ETFs tend to trade sideways in the minutes leading up to the Energy Information Administration and Baker Hughes reports.

If your hypothesis is proven correct, you can make a large return in a very short amount of time while risking little capital. Check the Overall Trend. Finally, bear in mind that although day trading takes place over a time span measuring in minutes, the day's movements are indicative of the bigger picture. Use the daily, hourly and minute charts to gauge support and resistance levels from the prior day's week's trading.

Usually an area of strong support and resistance that has been tested multiple times can prove to be a better entry or exit point than a level that appears during the course of the day.

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Basics Of Technical Analysis. The Bottom Line Leveraged ETFs are not for the faint of heart. Discover how leveraged ETFs work and the risks that come with investing in them.

Learn about the three largest leveraged ETFs in financial services. Compare the differences and similarities between the Direxion Daily Small Cap Bear 3X ETF and the Direxion Daily Small Cap Bull 3X ETF. Investors who are over the leverage game should consider ETFs as a way to maximize returns and increase exposure. Discover the major differences between two leveraged energy ETFs, and learn why one may be more suitable for your portfolio than the other.

Find out more about the Direxion Daily Small Cap Bear 3X ETF, the characteristics of TZA and the suitability of the Direxion Daily Small Cap Bear 3X ETF. Since you can't short stocks in an IRA, consider these liquid inverse ETFs instead. New highly levered ETFs grant exposure to triple the return on an index, either short or long, but they aren't for the faint of heart.

Learn about some of the leveraged exchange-traded funds ETFs that investors can use to track the banking industry within Discover some of the leading companies offering leveraged ETFs today and learn specifically what leveraged ETFs are available Explore some of the leveraged exchange-traded funds, or ETFs, available for investors interested in leveraged exposure to Read about leveraged exchange-traded funds ETFs that track the retail sector, and why using leveraged ETFs can be a boom-bust Explore the investing options that are available through leveraged ETFs that can be used to track the oil and gas drilling NUGST , DUST , UWTI , DWTI , TNA , TZA , TQQQ , SQQQ , UPRO , SPXU , LABU , LABD , EDC , EDZ.

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