Three things to know before using leveraged ETFs

Taking advantage of volatility

The concept of leverage - borrowing additional money to increase the size of your exposure to an asset class - has been around for hundreds of years, but for mainstream investors it really took off in 2005 with the creation of leveraged ETFs.

Today there is $70bn of AUM in leveraged and short ETFs globally (see chart below), with the majority invested in equities (accounting for 72% of the AUM). Leverage can work both for and against investors, and it is therefore vital they clearly understand how such products work. Below are three key things all investors interested in buying leveraged ETFs need to know. What does leverage mean? As the name suggests, leveraged products allow an investor to magnify the daily returns of their investment. For example, if you owned a 3x leveraged ETF tracking the FTSE 100, and the FT...