SQQQ

What is SQQQ?

A bear market has its opportunities. If betting against the Nasdaq sounds interesting, read on. 

SQQQ is a leveraged inverse Exchange Traded Fund (ETF) also known as a short ETF. Designed by Proshares, SQQQ returns three times the opposite (-3x) of the Nasdaq-100’s performance on any given trading day before fees and expenses.

As with any leveraged ETF, SQQQ uses financial derivatives such as options and futures to multiply returns and losses. SQQQ’s performance is based on the Nasdaq-100’s performance on any given day, except inversely.

What is a short ETF?

A short ETF is a product that performs in the opposite way to the underlying index it is tracking.

For example, if the underlying index decreases by 2%, the 3x leveraged inverse ETF will result in a gain of 6%. If the underlying index increases 2% in one day, the 3x leveraged inverse ETF will lose 6%. 

A short ETF can be bought or sold on an exchange just like any stock.

How do traders use SQQQ?

SQQQ’s underlying index is the Nasdaq-100. 

This index contains, based on market cap, 100 of the largest domestic and international non-financial companies. Over 50% are in technology. Almost 20% are telecommunications stocks. And a sizable portion of the index is made of consumer discretionary and health care companies.

As SQQQ is an inverse ETF, intraday traders will invest when they expect the greater non-financial market, in particular Nasdaq-100 companies, to encounter difficulty.

Should I buy SQQQ?

In most cases, SQQQ ETF is used by financial advisers and professional investors. They thoroughly understand the inverse nature of short ETFs. More importantly, they understand both gains and losses are multiplied due to leverage.

SQQQ was not designed to be a passive, long-term investment. It was designed by ProShares as a short-term trading vehicle for high-reward gains. Because of this, SQQQ can pose high risks.

SQQQ is meant to be bought and sold intraday. As per ProShares’ SQQQ fact sheet:

"Due to the compounding of daily returns, holding periods of greater than one day can result in returns that are significantly different than the target return and ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings as frequently as daily. Investors should consult the prospectus for further details on the calculation of the returns and the risks associated with investing in this product."