The Dangers Of Leveraged Inverse ETFs
Posted by Jon on August 13th, 2010One of the most popular trading vehicles used by traders these days are the 3x leveraged ETFs that are like stocks on steroids. Some examples of such ETFs are FAZ and FAS.
These stocks move and they move fast but from my experience (and many traders too!) is that they are only good for short term swings because if you hold on to them long enough, their value will erode greatly. Just pop up a chart of each of these ETFs and you’ll see what i mean.
These ETFs require a consistent trend to ride and if you don’t get out as soon as that trend ends, you’ll end up losing value quickly.
Intraday trades using these stocks is not a bad idea as you can really hit a homerun if you buy it at the low of the day and then watch the trend reverse and ride in your favor. What I’m basically trying to say is that timing is key with these 3x ETFs and if you don’t have your timing right, then you’d be better of trading something else.