Leveraged ETPs are designed to deliver a multiple of the daily performance of an underlying index or asset, commonly 2x or 3x. Their objective is strictly daily, meaning they aim to replicate the leveraged return for a single trading session, not over longer periods.
These products are primarily intended for short-term trading, speculation, or tactical positioning, rather than long-term investment.
Leveraged ETPs are designed to deliver a multiple of the daily performance of an underlying index or asset, commonly 2x or 3x. Their objective is strictly daily, meaning they aim to replicate the leveraged return for a single trading session, not over longer periods.
These products are primarily intended for short-term trading, speculation, or tactical positioning, rather than long-term investment.
How Leverage Is Achieved
Leveraged ETPs use derivative instruments such as futures contracts, swaps, and options to increase exposure beyond the value of the invested capital. The product issuer manages this exposure dynamically and rebalances the portfolio daily to maintain the stated leverage ratio.
This daily rebalancing is essential to the product’s structure but also introduces additional costs and risks.
Daily Reset and the Compounding Effect
Because leveraged ETPs reset daily, returns over multiple days are affected by compounding. In trending markets, compounding can enhance returns. In volatile or sideways markets, it can significantly erode value.
This means that even if the underlying index returns to its original level over time, a leveraged ETP may still incur losses.
Key Risks of Leveraged ETPs
- Magnified gains and losses due to leverage
- Volatility drag caused by daily rebalancing
- Higher fees and transaction costs
- Complexity that may lead to misinterpretation by inexperienced investors
At XTB, investors can access a range of leveraged ETPs that provide targeted exposure to specific equity indices. These products are designed for short-term trading and tactical positioning and should be used with a clear understanding of leverage and risk.
Leveraged ETPs Offered at XTB
- 3NGS.UK- A 3x leveraged ETP providing daily amplified exposure to the natural gas market. It is typically used by experienced traders seeking to capitalise on short-term price movements driven by weather conditions, supply disruptions, or inventory data.
- DBPG.DE - A leveraged ETP offering enhanced exposure to the German equity market, commonly linked to the DAX index. It may be used during periods of strong directional conviction on German equities.
- DL2P.UK - A 2x leveraged ETP designed to magnify the daily performance of selected European equity indices. This product is often used for tactical positioning around macroeconomic events or earnings seasons.
- DS2P.UK - A 2x leveraged short ETP that aims to deliver the inverse daily performance of its underlying index. It can be used to express short-term bearish views or to hedge portfolio exposure during anticipated market pullbacks.
- DSP5.FR - A leveraged ETP providing amplified exposure to the S&P 500 index. It is commonly used by traders seeking short-term exposure to US equity market momentum.
- LQQ.FR - A leveraged ETP offering increased exposure to the NASDAQ-100 index, often favoured by traders targeting short-term movements in US technology and growth stocks.
When and Why Traders Use Leveraged ETPs
Leveraged ETPs are typically used when investors have a strong short-term view on market direction. They are most effective in trending markets where price movements are sustained rather than choppy. Common scenarios include trading around economic data releases, central bank decisions, earnings announcements, or periods of elevated market momentum.
Due to daily reset mechanics, these products are generally not suitable for long-term holding. Prolonged exposure, particularly in volatile or sideways markets, can result in value erosion even if the underlying market direction is eventually correct.
When to Consider Short or Inverse Leveraged ETPs
Short or inverse leveraged ETPs, such as DS2P.UK, are designed to benefit from declines in the underlying market on a daily basis. Traders may consider using these products when they expect short-term market weakness, increased volatility, or downside risk following strong rallies.
Inverse ETPs can also be used as temporary hedging tools to offset portfolio exposure during uncertain market conditions. However, like all leveraged products, they require active monitoring and disciplined risk management.
ETPs and leveraged ETPs involve significant risk and may not be suitable for all investors. Leveraged and inverse ETPs are designed to deliver daily performance objectives and are not intended for long-term investment. Past performance does not guarantee future results. Investors should carefully consider their objectives, experience, and risk tolerance before trading.
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This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.
