Leveraged ETFs for Beginners

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2. How Leverage Works in ETFs

Traders and investors use leverage to boost potential returns, also called equipment. This is achieved through increased portfolio exposure to an asset. When 100% of a portfolio is investing in an asset, and the value of the asset increases by 3% a day, the value of a portfolio increases also by 3%.

Now that 200 percent of the portfolio value had been invested in the same asset, a return equal to 6 percent of the value of the portfolio would be generated. To open a position worth more than the value of a portfolio, debt, margin, or derivatives are used. All three methods essentially entail borrowing capital while using existing capital as collateral.

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