CHAPTER 24LEVERAGED AND INVERSE ETFs

As the ETF market has grown and matured, the number and range of ETFs have expanded along with it, as we have described in this book. A unique category of ETFs that has been introduced over the last few years is leveraged and inverse ETFs. These are different from traditional ETFs in the sense that they are not really “buy, hold, and rebalance” products. They are designed more for short-term traders who have a directional view of the market and want to get either leveraged (e.g., 2× or 3×) or inverse (e.g., –1× or –2×) exposure to the market. These ETFs work on the principle of daily compounding, which is not always understood by retail investors who are not familiar with this concept. These ETFs may, however, ...

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