Is a 2x leveraged long ETF suitable for long-term holding? Is this a trap for people who can’t do the math?🤔🤑
A lot of people bought the 2x long ETFs for Hailix (Hyliance) or 2x long on SpaceX, got stuck, and planned to hold long-term—only to find that the longer they held, the less money they had in their accounts.
Maybe the stock price eventually comes back close to where it started, but by then the 2x long ETF is already down by about 40%.
Let’s talk about how the numbers are calculated. Suppose I hold 20,000 yuan: 10,000 in one stock, and 10,000 in a 2x leveraged long ETF of that stock.
Day 1: The stock price drops 20%. My stock account becomes 8,000. The ETF drops 40%, becoming 6,000. I start to panic.
Day 2: The stock price rises 25%. My stock account returns to 10,000. The ETF rises 50% and becomes 9,000. I feel relieved—then I realize I’m still down 1,000.
Over the next eight trading days, the stock price keeps bouncing back and forth like this four times, and each time it returns to the original price.
My stock account is still 10,000, but the ETF account drops to 5,905. The problem is: after the fall, the ETF went from 6,000 up by 50%—so it rose by 3,000. But when the price returns to the starting point, it doesn’t come back to where it should.
It multiplies the daily gain/loss by 2 every day. The more times it bounces, the thinner your principal gets.
For example, from early last year to early November, MicroStrategy (MSTR) only fell about 12%, but its 2x leveraged long (MSTU) fell more than 65%. Its 2x leveraged short (MSTZ) also fell more than 65%.$NVDAB
A lot of people bought the 2x long ETFs for Hailix (Hyliance) or 2x long on SpaceX, got stuck, and planned to hold long-term—only to find that the longer they held, the less money they had in their accounts.
Maybe the stock price eventually comes back close to where it started, but by then the 2x long ETF is already down by about 40%.
Let’s talk about how the numbers are calculated. Suppose I hold 20,000 yuan: 10,000 in one stock, and 10,000 in a 2x leveraged long ETF of that stock.
Day 1: The stock price drops 20%. My stock account becomes 8,000. The ETF drops 40%, becoming 6,000. I start to panic.
Day 2: The stock price rises 25%. My stock account returns to 10,000. The ETF rises 50% and becomes 9,000. I feel relieved—then I realize I’m still down 1,000.
Over the next eight trading days, the stock price keeps bouncing back and forth like this four times, and each time it returns to the original price.
My stock account is still 10,000, but the ETF account drops to 5,905. The problem is: after the fall, the ETF went from 6,000 up by 50%—so it rose by 3,000. But when the price returns to the starting point, it doesn’t come back to where it should.
It multiplies the daily gain/loss by 2 every day. The more times it bounces, the thinner your principal gets.
For example, from early last year to early November, MicroStrategy (MSTR) only fell about 12%, but its 2x leveraged long (MSTU) fell more than 65%. Its 2x leveraged short (MSTZ) also fell more than 65%.$NVDAB
