The market's fast-paced nature has deflected attention away from ETFs, which are considered conservative by today’s market standards. However this pales in comparison to the lack of attention received from leveraged ETFs.
All leveraged investments come with a substantial amount of risk. With 3x leveraged ETFs, the risk is amplified three times over. This makes the fund risky to hold for long periods, though it can also bring bumper returns to your portfolio.
Based on this, we have compiled a list of the best 3x leveraged ETFs to trade.
What is a 3x leveraged ETF?
Leveraging in finance is an investment strategy that entails using borrowed funds to increase your position size. A leveraged exchange-traded fund (ETF) is a financial investment vehicle that utilizes financial derivatives and debt to increase an underlying fund's returns.
It differs from a traditional exchange-traded fund in the sense that while a conventional ETF merely tracks the performance of an underlying index, the leveraged ETF tracks the performance with other measures to increase returns. These measures include derivatives, options contracts, futures contracts, and investments in other ETFs exposed to the underlying index.
A 3X leveraged ETF are funds that track a wide variety of asset classes, such as stocks, bonds, and commodity futures and apply leverage to gain three times the daily or monthly return of the respective underlying index. Such ETFs come in long and short varieties.
Invest in 3x leveraged ETFs in 3 steps
Open a trading account
The first thing to do is to open an account with an online broker. There are a variety of brokers available online and offline. Pay attention to commissions and look out for hidden charges like interest on margins or service fees for withdrawals. Also, take note of trading limits and minimum account balances. If you are not fully confident in your trading abilities, you may seek professional advice from a full-service broker but be aware you would pay extra fees.
Choose 3x leveraged ETFs
Before selecting a 3x leveraged ETF, make sure you note the economic conditions and trends in the market. This would guide you in making a choice. Also, know your risk appetite and how much loss you can stomach if your trade goes wrong.
Place your trade
After you have opened a trading account, you can start trading. Have an idea of the minimum balance your trading account can hold and the management fees. You can buy as much as you want but since it has a 3x leverage, the risk of losing is quite high, so trade with caution.
Where can I trade 3x leveraged ETFs?
3x leveraged ETFs are publicly traded on exchanges of the US stock market. This means that they are accessible to all traders and investors. You may choose to seek the services of a professional broker. Alternatively, you may decide to conduct due diligence and invest directly with the firm that offers the 3X leveraged ETF of your choice. However, brokers are usually the best place to trade. We’ve shortlisted our top 3 selected brokers on the table displayed next.
Best 3x leveraged ETFs to buy now
Based on returns, total assets under management, and prevailing market conditions, we have selected our top 10 3x leveraged ETFs:
- ProShares UltraPro Short QQQ (SQQQ)
- Direxion Daily S&P 500 Bear 3X Shares (SPXS)
- ProShares UltraPro Short S&P500 (SPXU)
- Direxion Daily S&P Biotech Bull 3X Shares (LABU)
- Direxion Daily Semiconductor Bull 3X Shares (SOXL)
- Direxion Daily Retail Bull 3x Share (RETL)
- Direxion Daily Small Cap Bull 3x Shares (TNA)
- MicroSectors FANG+ Index 3X Leveraged ETN (FNGU)
- Direxion Daily Financial Bull 3x Shares (FAS)
- Direxion Daily Regional Banks Bull 3X Shares (DPST)
ProShares UltraPro Short QQQ (SQQQ)
SQQQ is a fund issued by ProShares, which offers 3x daily short exposure to the Nasdaq-100 Index. Investors who are bearish can make speculative bets against the index through this fund. The total assets under management (AUM) for SQQ is $1.3 billion, with an annual dividend yield of 0.91%. In the last three months, the fund has slid by 33% because the market has been bullish. This fund is more profitable in bear markets.
Direxion Daily S&P 500 Bear 3X Shares (SPXS)
SPXS is another 3X leveraged ETF that is good in bearish markets. Issued by Direxion, the fund seeks a 300% daily return on short exposure to the S&P 500. The fund uses assets such as securities and swaps to achieve its 3x daily short leverage. The fund’s total AUM is $612.8 million.
ProShares UltraPro Short S&P500 (SPXU)
SPXU is an inverse leveraged fund. Issued by Proshares, SPXU seeks daily returns that are three times the inverse (-3x) of the daily performance of the S&P 500. This implies the fund reflects three times the opposite performance of the index. The fund would be most profitable during bear markets. The fund has a total asset base valued at $657.47m under its management. SPXU has slid by 32% in the last three months.
Direxion Daily S&P Biotech Bull 3X Shares (LABU)
LABU seeks to make investment returns from 3X daily exposure to the S&P Biotechnology Select Industry Index. The fund invests in derivatives contracts to leverage against the index's performance, which is rebalanced at the end of each trading session. The fund has a total AUM of $433.86M. in the last three months, the fund has returned 136%.
Direxion Daily Semiconductor Bull 3X Shares (SOXL)
SOXL is a bullish fund that seeks to make investment returns from 3X daily exposure to the PHLX Semiconductor Sector Index, an index of companies in the semiconductor sector. SOXL uses swap agreements and futures contracts as leverage exposure to the index, which it rebalances daily. The fund has returned 64.1% in the last three months. The total AUM of the fund is $2.01bn.
Direxion Daily Retail Bull 3x Share (RETL)
RETL aims to make investment returns from 3x daily exposure to S&P Retail Select Industry Index, which tracks the US retail industry. At least 80% of the fund’s net assets are invested in financial instruments and securities that provide daily leveraged exposure to the index, which it rebalances daily. The total AUM for the fund is $57.22m. RETL has returned 65.2% in the last three months
Direxion Daily Small Cap Bull 3x Shares (TNA)
TNA seeks to make investment returns from a daily300% levered exposure to the Russell 2000 Index. At least 80% of the fund’s net assets are invested in financial instruments and securities that provide daily leveraged exposure to the index, which it rebalances daily. The fund has a total AUM worth $1.55B. TNA has returned 133% in the last three months
MicroSectors FANG+ Index 3X Leveraged ETN (FNGU)
FNGU tracks the performance of “FAANG” stocks and seeks to make daily investment returns from a daily 3X leverage exposure to the NYSE FANG+TM Index. The index also includes stocks classified in the technology or consumer discretionary sectors, or those that exhibit similar traits to technology stocks. The total AUM for the fund is $1.2bn.
Direxion Daily Financial Bull 3x Shares (FAS)
FAS seeks to make daily investment returns from a 3x leveraged exposure to the Russell 100 Financial Services Index. The fund invests in securities and assets such as ETFs, swaps, derivatives and futures contracts, and any other financial instrument exposed to the index, which it rebalances at the end of trading every day. The total AUM for the fund is $2.29bn. The index has returned 109.1% in the last three months.
Direxion Daily Regional Banks Bull 3X Shares (DPST)
DPST seeks to make investment returns from a 3x leveraged bullish exposure to the S&P Regional Banks Select Industry Index, an equal-weighted index that tracks US regional banks. The fund invests in financial instruments, securities, and other assets that give it levered exposure to the index, which is rebalanced at the close of trading daily. The fund’s total AUM is $253m. the fund has returned 141% in the last three months.
Expert tip on investing in 3x leveraged ETFs
3x leveraged ETFs can significantly improve your portfolio returns, but they are designed for experienced traders. You must have a deep understanding of the underlying sector which the ETF tracks. Furthermore, you should have risk management strategies in place because leveraged instruments are inherently risky.
Why trade 3x leveraged ETFs?
Investing in 3x leveraged ETFs comes with benefits for traders. It is a way of making a quick profit within a short time. Once you track the market or sector’s performance, you can choose the appropriate fund and invest. Secondly, 3x leveraged ETFs are a veritable way of having leverage without using margins or options. Thirdly, you can capitalize on falling prices and make a profit when the market is bearish. 3x leveraged inverse ETFs allow investors to make money from the inverse performance of the index. Lastly, if held for long periods, your profits compound, which could bring exponential returns for your portfolio. However, only trade with an amount you can afford to lose.
Frequently Asked Questions
Direxion Daily Retail Bull 3x Shares (RETL) is in good shape at the moment.
No, they are very risky investments
Anyone of legal age can invest in 3x leveraged ETFs
An ETF is a basket of shares of different companies sold as one unit, while stock gives you a unit of ownership of one company
No, they are complex and volatile investments that require experience and understanding of the market.
There are over 100 leveraged ETFs valued at $48.95bn.