Q&A: What is a leveraged ETF?

A leveraged ETF is an ETF that utilizes derivatives and debt to multiply the returns of an underlying index. In other words, leveraged ETFs track an index, but they have a multiplier of 2 or 3 times the daily change.

For example, SPXL is a leveraged ETF that is 3x the S&P 500; if the S&P 500 is up 1% on the day, SPXL will be up 3%; if the S&P 500 is down 1%, SPXL will be down 3%. SPXL will do whatever the S&P 500 does, except multiplied by 3. This allows for greater returns in bull markets, but greater losses in bear markets.

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