Reminder of the Limitations of Leveraged (2X & 3X) Instruments

[Maxime A.]

Harry,

note that even with no leverage, you end up with a smaller capital: 0.95 * 1.05 = 0.9975.

But if you're worried about the erosion of leveraged ETFs, I believe that a solution would be to use futures. In addition to solving this problem, it also presents these advantages:
- you can pick the exact leverage you want,
- you can trade it almost 24h a day, 5 days a week (which in turbulent times might be useful),
- low bid-ask spread.

2 inconvenients I can think of:
- you can't use it if you have a small sum of money to invest (unless you use a dangerous level of leverage), each TF contract being worth a notional amount of ~$79K,
- possible cost of rolling over positions.

The usual disclaimer applies though: trading of futures contract may not be suitable for everyone and involves substantial risk, etc.

Max