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Leveraged and inverse ETFs

There are a range of ETFs you can access on Stake that invest during different market conditions – such as leveraged and inverse ETFs. Before investing in them, you should understand how they work.

What is a leveraged ETF?

This is an exchange-traded fund that uses financial derivatives and debt to boost the returns of the underlying benchmark. Leveraged ETFs usually provide multiple times the daily performance of the index they track. For example, a 2x leveraged ETF tracking the S&P 500 will aim to deliver twice the daily return of the index. Leverage can also be applied to inverse ETFs. Funds that offer leverage can be particularly risky because they require higher leverage to achieve their returns.

What is an inverse ETF?

Inverse ETFs aim to profit from a decline in the value of its underlying benchmark. Also known as ‘short’ or 'bear’ products, they use financial instruments to deliver opposite returns of the index the ETF tracks. An S&P 500 inverse ETF intends to deliver a 1% positive return if the S&P 500 index falls by 1% during one day. Investors often buy inverse ETFs as a hedging tool or a short-term trading strategy to protect against a potential market downturn. The main risks associated with investing in inverse ETFs include compounding risk, correlation risk, derivative securities risk, and short sale exposure risk.

Please read before investing in these instruments

Inverse and leveraged ETFs are complicated instruments generally suited for professional investors and traders, who monitor their trading regularly and understand the underlying risks of these investments.

As these products are designed to meet their stated objectives on a daily basis, they may not be suitable for long-term investing. As a precaution, we’ll also seek your confirmation as a reminder of the inherent risks when you place an order.

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When you invest, your capital is at risk.

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