Investor Education Course 04: The Implementation Principles of Leveraged ETFs and Applicable Groups

What is a leveraged ETF? After entering the US stock market, you will find that there are many trading varieties of nested derivatives, such as the frequently seen X times long XXX, where the first X refers to the leverage multiple, commonly 2 times or 3 times, and the following XXX is the name of the underlying asset. This investment variety is called a leveraged ETF. A leveraged ETF is an ETF that embeds financial derivatives, amplifying both gains and losses. Compared to directly purchasing through financing, leveraged ETFs have the advantages of not requiring a margin account and having lower costs than financing rates. A commonly seen leveraged ETF fund is the 3 times long Nasdaq 100 Index fund, code: TQQQ. First, let's talk about what TQQQ is. Simply put, it is the "super amplified version" of the Nasdaq 100 Index. If QQQ rises by 1%, it rises by 3%; if QQQ falls by 1%, it falls by 3%. Speaking of the principle, many people are curious about how TQQQ achieves the threefold amplification. For example, if you have 10,000 yuan and want to achieve a return (or loss) of 30,000 yuan, the fund manager of TQQQ will use financial instruments such as futures and swaps to help you achieve this "small investment for big returns" goal. The biggest pitfall of leveraged ETFs has an interesting detail: TQQQ adjusts its positions daily to ensure that it maintains a 3 times leverage at the opening of the next trading day. This is like a magnifying glass that needs to be recalibrated every day to ensure that the amplification factor remains at 3 times. Let's look at a practical example