SINGAPORE (Apr 23): First off, a warning: A leveraged exchange-traded fund is a risky asset used by traders. But, as markets turn volatile and market indices suffer declines as well as gains with no clear uptrend, sophisticated traders and investors may use leveraged ETFs to hedge some of their risk or loss, as the case may be.

The purpose of a leveraged ETF is to increase the exposure to and impact of the underlying index or investments. They are generally used by traders with a short-term trading strategy who may be interested in capitalising on daily movements in a particular index, market or sector.

Unlike normal ETFs that track an underlying index and provide investors with the opportunity to mimic an index, leveraged ETFs aim to outperform the index or commodity they track. A leveraged ETF is able to provide twice to thrice the return of the correlating asset. For instance, if the underlying index rises 1%, a two-times leveraged ETF needs to rise 2%.

To continue reading,

Sign in to access this Premium article.

Subscription entitlements:

Less than $9 per month
3 Simultaneous logins across all devices
Unlimited access to latest and premium articles
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)

Stay updated with Singapore corporate news stories for FREE

Follow our Telegram | Facebook