Glossary · Risk
Leveraged and inverse ETPs
Exchange-traded products
Exchange-traded products that aim to deliver a multiple of an index’s return — such as two or three times, or the opposite — over a single day.
A 3x leveraged product aims to rise 3% on a day its index rises 1%, and to fall 3% when the index falls 1%. An inverse (−1x) product aims to do the opposite of the index. The aim applies to one day only: the exposure is reset every day.
Because of that daily reset, returns over weeks or years compound differently from the index. In a market that swings up and down, a leveraged product can lose value even when the index ends where it started, and losses can be far larger than the index’s. The multiple over one day is not the multiple over a year.
Many are exchange-traded notes or commodities rather than funds, so they also carry the credit risk of their issuer. They are complex products, and UK platforms usually ask questions to check understanding before they can be traded. Their long-term figures on this site are not comparable with an ordinary fund’s.
On Fundology: Leveraged and inverse products
Related terms
- ETFA fund whose units trade on an exchange throughout the day like a share.
- VolatilityHow much a fund’s returns vary around their average, usually stated as an annualised standard deviation.
- Maximum drawdownThe largest peak-to-trough fall over a period — the worst loss a holder would have sat through.
More terms on risk
Definitions describe how a term is used on Fundology. This is information, not advice.