30/1/2017 PrintSelection

EnterURL
ArethereanydrawbackswhentradingtheSPXL
Footnote
Add
foralongtermtomakeprofits?
ArethereanydrawbackswhentradingtheSPXLforalongtermtomakeprofits?
72
250
Search
CancelUpdate
HasanyonetradedtheSPXLforalongterm(1yrormore)tomakeprofits.Isthereanydrawbackstothis
strategy.IambullishontheUSmarketinthelongrun,canIhaveSPXLasasmallportioninmyportfolio?
HasanyonetradedtheSPXLforalongterm(1yrormore)tomakeprofits.Isthereanydrawbackstothis
strategy.IambullishontheUSmarketinthelongrun,canIhaveSPXLasasmallportioninmyportfolio?
HasanyonetradedtheSPXLforalongterm(1yrormore)tomakeprofits.Isthereanydrawbackstothis
strategy.IambullishontheUSmarketinthelongrun,canIhaveSPXLasasmallportioninmyportfolio?
86
250
Search
Searchforaphoto Upload
Searchforaphotooruploadyourown
Poweredby
CancelUpdate
UpdateCancel
Answer
Request
Follow3
Comment
Facebook
Twitter
CopyLink
More
Share
Downvote
RequestAnswers:
RequestFromQuora
RequestingFromQuora
Wewilldistributethisquestiontowriters,andnotifyyouaboutnewanswers.
We'refindingwriterstoanswer,andwillnotifyyouaboutnewanswers.

AnswerWiki

250
Search
CancelSubmit
4Answers

DanaHooshmand,Investmentconsultant,formerprivatebanker
WrittenJun29,2015
LeveragedETFslookexcitingandhot.Theycangoupalmost100%inagoodyear,likewehadin2013!
Butdon'tbetemptedthey'renotaneasypathtorichesandshouldmostlybeusedforshortterm
positionsbypeoplewhoareexperiencedatreadingthemarkets.

https://www.quora.com/ArethereanydrawbackswhentradingtheSPXLforalongtermtomakeprofits 1/4
30/1/2017 PrintSelection

Fundamentally,themainreasonisthatthelongtermperformanceofleveragedETFsdeviates
significantlyfromtheperformanceoftheunderlyingindextheytrack.Lookatthischart(source:CBS):

Argh!ThetwoleveragedETFshaveunderperformedwhentheunderlyingisflat!What'shappening??Let's
lookatwhatcausesthis:

1.LeveragedETFsprovidedailyleveragedexposure,andevenwithouttrackingerrorthedifferenceis
significantovertime.Thinkofthissimpleexample:SaytheSPXstartsat100andgoesup2%,then
down2%,thenup.04%.Imadethisexampleup,constructingitsotheSPXwouldbebackat100.
NowthinkoftheSPXL,againstartingat100.Ideally,a3Xmultiplewouldbeup6%,thendown6%,
thenup.12%.TheSPXLwouldbeat99.76.Thisdoesn'treflectmostlongterminvestors'intentions.
https://www.quora.com/ArethereanydrawbackswhentradingtheSPXLforalongtermtomakeprofits 2/4
30/1/2017 PrintSelection

2.Followingfrompointone,leveragedETFsdon'tworkaswellinvolatilemarkets(lookingatthe
lastsixmonths,that'sundeniablyhowI'dcharacterisethisyear...andwhyImostlygotoutofthe
marketmyself).Thehigherthefluctuations,thehighertheinstability.
3.Allfundshavetrackingerror.Thisisafunctionofallindexfunds,butyou'llseeitFARlessinthe
largeandmegastableindexfundstrackingtheSPXdirectly,liketheuberpopularSPY,orofcourse
indexfutures.
4.Smaller/morecomplexETFshavehigherratios/fees.Thefeesoflargeindexfundsisusuallyless
than0.05%.Forfuturesit'sbasicallyzero(excepttradingfees).LeveragedETFsoftenhaveexpense
ratiosof>1%andsometimes>2%.That'sawholeother12%you'dhavetooutperformby...atough
call.
5.LeveragedETFsarebuiltonsynthetics,whichsufferfromcounterpartyrisk.Thisvaries
massivelybetweenfundandistheleastsignificantofthereasons(asmanyfundsoperatewellbased
onsynthetics),butthestructureofleveragedETFsisquitedifferenttotraditionalETFsthathave
stocksasunderlyingassets.

Ifyou'rebullishontheSPX,you'rebetteroffeitheropeningafuturesaccountandtradingtheESMini
(rollingoverasappropriate)orusingamarginloanatlowinterestrates(andthey'restilllowthesedays).My
preferredmethodistheESmini.Tradingfuturesisrisky,butjustbecausethere's50xleveragedoesn'tmean
youhavetotradeyourwholeaccount!Besafe,andgoodhunting.
1.1kViewsViewUpvotesAnswerrequestedby
VarunLobo
Loading
Upvote3Downvote
Comment
CopyLink
Embed
More
Share

AlanClement,Trader&Quanthelixtrader.com
WrittenJun30,2015
DanaHooshmandhasprettymuchnailedthereasonswhyyouneedtobecautiouswithleveragedETFs.But
I'daskamorefundamentalquestion,andthatiswhyyouarebullishtheS&P500?I'mnotnecessarilysaying
that'sabadcall,allI'msayingisyoushouldhavesomewayofquantifyingthatdecision,sothatyoucan
haveawayofdeterminingwhenthatanalysisneedstochange.

Ifyoutradealeveragedproduct(ETForfutureorwhatever),youareintroducinganelevatedrisktoyour
account.So,youshouldhaveanondiscretionarymethodofreassessingyourviewfrequently,toknowwhen
it'stimetoheadfortheexit.

Priceshocksarehappeningwithincreasingfrequency,andwhentheydo,correlationofassetpricesgoesto
1.Withleveragedproductsyoucaneasilydoalotofdamagetoanaccountinashortspaceoftimeinsuch
anenvironment,sobesuretohaveyourrisklevelsinplace,beforeenteringthetrade.

Goodluck!
389ViewsViewUpvotesAnswerrequestedby
VarunLobo
Loading
Upvote1Downvote
Comment1
CopyLink
Embed
More
Share

https://www.quora.com/ArethereanydrawbackswhentradingtheSPXLforalongtermtomakeprofits 3/4
30/1/2017 PrintSelection

BrianBain,studiedatFinance
WrittenJun29,2015
Thedownsidetoholdingahighlyleveragedfund(ex:3xlikeSPXL)formorethanafewdaysissomething
calledcontango(Contango).Thisbasicallymeansthatthefundcontinuouslyloosesmoneyduetothewayit
isstructured.Thegainscanovercometheloses,butit'stypicallynotagoodmethodforalongterm
approach.

Someinfotoconsider:HowToBuyAndHoldLeveragedETFs:TheTop7Outperforming3xETFsOver
ThePastYear

WhatisETFContango?

ImportantinformationaboutleveragedandinverseETFsandETNs

Hopethishelps.
283ViewsViewUpvotesAnswerrequestedby
VarunLobo
Loading
Upvote3Downvote
Comment
CopyLink
Embed
More
Share1

ElvisPellumbi,Buysideinvestorforover10yearsatvariouseventdrivenhedgefunds
WrittenJun30,2015
ManyofthedrawbacksofinvestinginvestinginleveragedETFshavealreadybeenpointedout.Iwouldadd
marketdepth/liquiditywhichissignificantlydifferentbetweentheETFandtheunderlying.Youneed
someonetotaketheothersideandespeciallywhenyouwanttoexitthepositionthebid/ask(inleveraged
ETFsinparticular)tendstogapinvolatilemarkets.

SoIhaveusedETFsandleveragedETFs(includingSPXL)ashedgesforshortperiodsofupto23weeks
butnolonger.

Iwouldadviseyoudothesame,justastheotherwritersheresaidbeforeme.

https://www.quora.com/ArethereanydrawbackswhentradingtheSPXLforalongtermtomakeprofits 4/4