3X ETFs are the triple leveraged ETFs. These ETFs are designed to amplify the returns of the benchmark indices by three times by using financial derivatives and debt. Thus, compared to traditional ETFs that track the underlying index on a 1:1 basis, tripe leveraged ETFs aim to follow the benchmark index on a 3:1 basis.
3X ETFs are, therefore, more suitable for short-term trading purposes rather than long-term investment opportunities. They are more expensive than traditional ETFs due to the use of leverage and the need for constant trading to maintain their positions.
Factors to Consider Before Investing in 3X ETFs
The most critical factor to consider before investing in 3X ETFs is that leverage is a double-edged sword. Triple leveraged ETFs do amplify returns, but at the same time, they increase the risks as well. They are highly volatile and may lead to the loss of the entire principal capital if not managed well.
Therefore, investors must be cautious while investing in 3X ETFs. The fundamentals of the funds must be analyzed, including the expense ratio, rate of return, and average yield over a long period of time. Additionally, investors must also cross-check if the rates of return being promised by the specific 3X ETFs are feasible and sustainable.
Which 3X ETFs Should I Buy?
A wide variety of 3X ETFs trade on the US stock exchanges. We have aggregated a list of the top 3X ETFs, with at least $25 million in assets under management, for investors to make their selection from.
Investors can decide which 3X ETFs to buy based on the underlying index they track, leverage used, rates of return promised, and whether they will make money when the index rises or declines in value. Triple leveraged ETFs are excellent avenues of investment for magnifying the returns; however, they are highly volatile and risky.