ETF is a special leveraged product. Its constant leverage multiple at the beginning of the day is realized through the position transfer mechanism. If the underlying asset has a floating profit, then the underlying position will increase; if the underlying asset generates a floating loss, then the underlying position will be reduced.
Generally speaking, the rebalance will be performed at 00:00 (UTC+8) every day to avoid the enlargement of the gap between the portfolio's leverage ratio and the agreed ratio. When there is a violent fluctuation and the underlying asset’s fluctuation exceeds a given threshold value compared to the previous rebalance point, a temporary rebalance will be performed to control the risk of the investment portfolio. The rebalancing is only for the party that has lost money in the volatile market. For example, if the BTC rises by 15%, we will rebalance the ETF 3S product, and will not adjust other products. Please note that when the market continues to rise or fall after the rebalance, user’s loss will be decreased, but if the market converses instantly after the rebalance, the speed of the bounce of the product price may also be decreased because of the reduction of volume triggered by the rebalance.
As mentioned above, if a daily leveraged ETF makes a profit, it will reinvest that profit. In the event of a loss, part of the position sold will be restored to 3 times the leverage to avoid the risk of forced liquidation.
Take BTC3L (BTC 3x long product) as an example：
If the daily trend of the BTC in spot market in four days is +10%, +10%, +10%, +10% respectively, the return rate of BTC3L will be 185%, higher than the 3 times of the return rate of BTC in spot market (that is 44%);
If it is -10%, -10%, -10%, -10% respectively, the return rate will be -76%, lower than the 3 times of return rate of BTC in spot market (that is 35%);
If it is +10%, -10%, +10%, -10%, the return rate of BTC3L in four days will be -17%, underperform the 3 times of BTC’s return rate in four days of 2%.
Therefore, when the length of time exceeds a rebalance cycle, the accumulated earning rate of the leveraged ETF product is unable to keep fixed leverage to that of the spot product. Specifically, under a single market trend (rise/fall), the performance of leveraged ETF will overtake the claimed leverage times (i.e. the accumulated increase amount of leveraged ETF product in the same direction will surpass the 3 times of return rate of the underlying asset, and the accumulated decrease amount of the inverse leveraged ETF product will be smaller than the 3 times of the underlying asset’s return rate). However, the performance of leveraged ETF product in times of market fluctuation will underperform the claimed leverage times.
Therefore, it can be seen that ETF is more suitable for short-term trading under unilateral market trends to increase revenue. Products in times of bull and bear in the volatile market will cause net wear and tear, and the net loss may increase when the intraday fluctuations are severe. Please Be careful not to hold for too long and participate rationally.
Leveraged ETF is an emerging financial product. The above content does not constitute investment advice. Please pay attention to risk control.
Leveraged ETF greatly reduces the risk of liquidation, but there will be risks of approaching zero and liquidation under extreme market conditions. Please pay attention to the difference between the net value and the order price to avoid unnecessary losses.
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