Ultra ETFs – Advantages and Disadvantages
Ultra ETFs or Leveraged ETFs are exchange traded funds which use leverage and derivative trading for double/triple the return. There are now a number of Ultra ETFs available for trading from ProShares, Rydex, ProFunds, etc. There are both advantages and disadvantages of trading these funds.
Advantages of Ultra ETFs
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Advantages of Ultra ETFs
- Ultra ETFs tend to offer more return than normal ETFs.
- Ultra ETFs are good for fulfilling short-term profit goals.
- There are a broad range of Ultra ETFs to choose from index-specific, sector-specific and market-specific.
- Ultra ETFs are good for traders who are short on their capital but wants a increased market exposure.
- Ultra ETFs are good option in trendy markets where there is sufficient price volatility.
- There is not much long-term performance history available for Ultra ETFs.
- As Ultra ETFs are managed on a daily basis there is no surety of double/triple returns over long-term.
- Ultra ETFs have high expense rations (close to 1%) compared to normal ETFs (often below 0.2%).
- Ultra ETFs offer poor returns when the market is flat or moving sidewise.
- Ultra ETFs may involve counterparty risk, because of derivatives trading.
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posted by Daniel Pipitone at
5:50 AM
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