Invest with knowledge of the US 3x leveraged ETF threshold

U.S. 3X ETFs are ETFs that track the daily returns of an underlying index by a factor of three, and while you can expect high returns, you should be careful when investing in them because they can also have high losses.

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  For example, a 3x leveraged ETF is an ETF that tracks the daily return of an underlying index by 3x.If the Nasdaq 100 Index has a daily return of 1%, TQQQ (a 3x ETF that tracks the Nasdaq 100 Index) would have a daily return of 3%. So, TQQQ has the potential to make a lot of money in a short period of time, but you have to be aware that if it goes down 1%, it's also going to go down 3%. Maybe it's the big swings that make it so appealing to people, especially in Korea.

 

So it's important to at least know what they are and what the risks are before you invest in them, so I'm going to give you a quick overview of the main types, what to look out for, and how I invest in them.

1. 3x index-tracking ETFs

   Index-tracking 3x ETFs are ETFs that track a representative index, such as the S&P 500 Index, the Nasdaq 100 Index, or the Dow Jones Industrial Average. Because these indices reflect the overall movement of the U.S. stock market, index-tracking 3x ETFs offer a simple way to invest in the U.S. stock market.

Some of the most popular index-tracking 3X ETFs include the following.

• ProShares UltraPro QQQ (TQQQ): ETF that tracks the Nasdaq 100 Index at 3x .
• Direxion Daily S&P 500 Bull 3X ETF (SPXL): An ETF that tracks the S&P 500 index three times .
• Direcion Daily Dow Jones Industrial Average Bull 3X ETF (DIAX): An ETF that tracks the Dow Jones Industrial Average three times .

2. 3x Sector Tracking ETFs

 Sector-following 3X ETFs are ETFs that track a specific sector, such as technology, energy, financials, healthcare, etc.

Some of the most popular sector-following 3X ETFs include the following.

• ProShares UltraPro Semiconductors ETF (SOXL): ETF that tracks the semiconductor sector at 3x .
• Direxion Daily Energy Bull 3X ETF (ERX): ETF that tracks the energy sector 3x .
• Direxion Daily Financial Bull 3X ETF (FAS): An ETF that tracks the financial sector 3x .
• Direxion Daily Health Care Bull 3X ETF (XLV): An ETF that triples tracking the health care sector .

3. 3x ETFs that track individual stocks

 Individual stock tracking 3x ETFs are ETFs that track the share prices of individual stocks, such as Apple, Tesla, Amazon, etc.

Some of the most popular individual stock tracking 3X ETFs include the following.

• ProShares Ultra QQQ Trust (QQQ): An ETF based on the assets of an ETF that tracks the Nasdaq 100 Index.
• Direxion Daily Tesla Inc. Bull 3X ETF (TSLA): An ETF that tracks Tesla's stock price 3x.
• Direxion Daily Apple Inc. Bull 3X ETF (AAPL): An ETF that tracks Apple's stock price 3x .

 

Three-times leveraged ETFs can offer high returns, but you should be aware of the following risks: .

 

  

1. rollover costs

 A 3X ETF utilizes futures contracts to triple the return of the underlying index on a daily basis.The futures contracts have a fixed expiration date and must be replaced with new futures contracts when they expire.The cost of this process is called rollover costs.Rollover costs reduce the return of a 3X ETF.

 

2. increase volatility

 Since a 3x ETF tracks the return of the underlying index at 3x, the more volatile the underlying index becomes, the more volatile the 3x ETF's return will be. Therefore, you can lose a lot of money if the market moves quickly. I've seen returns of -70% in a matter of days. How much of a drop have you endured? Could you survive weeks or months with returns like that?

 

3. Investment Strategy for the 3X ETF

 Triple ETFs are suitable for short-term investments because rollover costs and increased volatility are likely to reduce returns over the long term. Therefore, when investing in a triple ETF, it's best to invest for a short period of time when you expect the market to go up.

Therefore, when investing in 3X ETFs, it's important to fully understand the risks and set stop losses to prevent losses from escalating.

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  I am doing various investment methods, which are also disclosed on my blog. Currently, I am disclosing self-fund, infinite purchase method (leveraged investment), and quantitative investment, but I am also doing sevens split, dollar (yen) trading, and value stock strategy investment. There were many others, but I tend to be a little oriented to investments that do not suit me or are difficult, so I processed them and collected investment funds in the above investment methods. Among them, the 2023 leveraged investment (infinite purchase) was the best in terms of yield. Also, this investment method was very easy as it was a repetitive task of buying a certain amount of money every day and selling it when the conditions were met.

 

But this strategy is not necessarily a good thing because it rides the wave of the economy, and I think I've been able to make a profit this year because I've refined my approach to investing over the years. Maybe this year will be a recession, so I don't know how it will turn out.

In the case of leveraged investing, you set an initial investment (A) and divide it into 40 parts and buy A/40 every day, just like the Infinite Buying Method teaches you. Of course, you don't always buy, but only when the selling conditions are not favorable. This creates an environment where you can only invest in the short term, and then you repeat it over and over again, treating it like a long-term investment. The important thing is that you don't withdraw the profit when you make a profit, but invest the profit again to take advantage of the compounding effect.

 

And in the case of leveraged investments, the leftover money is often playing in the reserve because you enter every day by dividing it into 40 parts. For example, if you initially invest 1/40 of the investment, 39/40 of the remaining investment is left in the reserve. At first, I didn't pay attention to it because I was just doing the infinite buy method, but as I accumulated some profits, this deposit became my pocket money, and I didn't want to play with it, so I put all the money to work by running short-term bonds called RPs. And when my investment grew a little bit, I increased the number of stocks from one to two, and the size of the investment increased, so the amount of 1/40 increased a little bit, and now I have three stocks, and I have set the investment in a weighted way.

 

   In addition, it is not necessary to have a lot of stocks to be a hedge, but to avoid overlapping areas of investment. For example, SOXL and BULZ are both 3x leveraged products related to semiconductors and technology, right? When times are good, this overlap will maximize the effect, but I think I should invest in different areas because I have no prospects or insights (and I was taught that way). I like SOXL these days, but not long ago, all semiconductor-related stocks were bad, so BULZ must have been bad then, right? Fortunately, I have other stocks to hedge to some extent.

 

It's a bit of a long post, but it's one of the easiest investments I've ever made that hasn't done too badly, so I thought I'd share it with you. I'm hoping that other investments will do well this year and I can share them with you. Thank you for reading this long post.