Swing Trading 101.
Leveraged ETFs can amplify returns. In this post we will explore if traders can make more money day trading, swing trading or investing in leveraged ETFs. Smart beta exchange-traded funds (ETFs) have become increasingly popular over the past several years. In fact, BlackRock projects that smart beta ETFs will grow at a 20% annual pace to $1 trillion in assets under management by
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Well, do not get too worked up, because while this is mathematically possible, the finance world will not allow it. Bottom line, brokerage firms require you bring cash to the table in order to protect their risk of loss. I am a firm believer that you should trade the active stocks of the day; the stocks that are showing sizeable gains or losses with increased volume.
Due to the borrowing limitations placed on leveraged ETFs by brokerage firms, I do not see the value in day trading these instruments. However, while the price range is size able, due to the margin requirements you will have a good amount of cash tied up in the trade.
The thing that makes day trading the hot stock more attractive is the hot stock of the day will likely not have special margin requirements. No more panic, no more doubts.
For example, as I am writing this article, there was a major bottom placed in the market in October Now, some of you maybe scratching your head wondering why I would suggest swing trading ETFs versus day trading and it simply comes down to the return potential. You can make more money day trading the hot stocks than you can make day trading leveraged ETFs due to the tighter price range swings and stiff intraday margin requirements.
Conversely, when it comes to swing trading, leveraged ETFs provide the ability to make considerable gains if you are able to catch a vertical move and of course resist the urge to sell out too quickly. The simple response to this statement is wrong! This isn't something necessarily to cause a retreat, since the SEC warns against the dangers of day trading; however, there is math to support their claim of why long-term investing in leveraged ETFs is bad for an investor. Below are a few excerpts from the alert which you can find using the following link:.
The alert then goes on to provide the math of how this under performance by the leveraged and inverse ETF is possible. If the index drops by 10 points on Day 1, it has a 10 percent loss and a resulting value of On Day 2, if the index rises 10 percent, the index value increases to On both days, the leveraged ETF did exactly what it was supposed to do — it produced daily returns that were two times the daily index returns.
That means that over the two day period, the ETF's negative returns were 4 times as much as the two-day return of the index instead of 2 times the return. Let's say you ignore all of this and say to yourself, well I would still be up more than investing in the underlying instrument, let me show you a few charts that may provide you a dose of reality. But honestly, how many people have been calling for the top of this run, which is well beyond the average bull run of 3. Bottom line, the returns look great on a historical chart, versus the reality of being able to time the moves and sit through all of the gyrations.
Inverted leveraged ETFs provide the ability to take a bear position on the market, without the unlimited risk to the upside that a short position contains.
The challenge with buying an inverted leveraged ETF is that you could get it wrong.
If you step back for a second, strip away all of the complicated algorithms for leveraged ETFs and look at the instrument for its real purpose, it boils down to greed.
Hey guys just wondering if any of you trade leveraged ETFs?