Abstract

In understanding how leveraged ETFs perform, we’ll uncover an important lesson relevant to all investing: how your choice of investment size can be more important than your choice of investment. To summarize, highly leveraged long and short ETFs provide a perfect illustration of how overly-aggressive investment sizing can turn a good trade into a losing one. An investor who borrows money to take a leveraged position in an asset will need to keep trading the asset in order to maintain a constant level of leverage as the asset price fluctuates.

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