“There are now over 234 leveraged and inverse ETFs”: Leveraged ETFs are gaining popularity among traders, says expert

Leveraged and inverse exchange-traded funds (ETFs) are gaining traction among traders looking for short-term market opportunities.

These financial instruments, which amplify daily market movements, are becoming essential tools in the world of trading.

Eliott WellenbachSenior Vice President of Institutional ETF Strategy at DirectionAnd Gianni Di Poceanalyst at The company Mercator SARLdiscussed the growing appeal of these ETFs at the Benzinga conference.Improve your trading with leveraged ETFsvirtual event.

“There are now more than 234 leveraged and inverse ETFs in the market, managing approximately $100 billion in assets,” Wellenbach explained. Direxion, a major player in this market since 1997, manages approximately $42 billion in assets, focusing on these niche financial products.

Understand the mechanics

Leveraged ETFs aim to generate several times the daily performance of their underlying indices. “These are short-term, tactical trading products,” Wellenbach explained. He highlighted the essential daily rebalancing mechanism, ensuring that the ETF maintains its intended exposure – whether 2x or 3x, bullish or bearish. This rebalancing is vital to achieving the desired leverage every day.

“We want to make sure that any merchant who has these products understands how they work,” he stressed.

Trader Preferences and Market Trends

The leveraged and inverse ETF market shows a clear preference for bullish products. “A lot of traders tend to be a little more optimistic,” Wellenbach noted.

These products are frequently used for short-term trading on both sides of the market. 3x bull funds, in particular, are popular, reflecting generally optimistic market sentiment.

However, bearish traders are also finding value in these ETFs. Gianni Di Poce, analyst at The Mercator LLC, noted: “These products are also used for short-term trading on the bear side. »

Importance of trader training

Both Wellenbach and Di Poce emphasized the importance of education for traders using these complex products.

“Leveraged ETFs are not suitable for long-term investment due to their daily rebalancing,” Wellenbach said. Direxion offers a range of educational resources, including videos and literature, to help traders understand the intricacies of these ETFs.

Di Poce added: “Understanding market cycles and the rebalancing mechanism is crucial for effective trading with these tools. »

Outstanding business behavior

Di Poce also shared his views on trading behavior during the event, particularly around technology stocks.

Nvidia’s rise had a significant impact on the Technology Select Sector Index. The company now weighs as much as Microsoft, reflecting traders’ dynamic responses to market movements.

“Tech stocks, especially leveraged ETFs, are seeing a lot of trading action,” Di Poce said.

The growing popularity of leveraged and inverse ETFs underscores their growing role in modern trading strategies. These products offer substantial opportunities to traders who understand their mechanics and are willing to engage in short-term trades. As the market for these ETFs grows, education and awareness remain crucial for their effective use.

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