What is an ETF, index ETF and a leveraged ETF?
Exchange-Traded Fund – ETF
An exchange-traded fund (ETF) is an investment fund that can be bought/sold on major exchanges much like a stock and is able to track either an index, bonds, commodities or can be a basket of assets similar to a Mutual fund. However, an ETFs price changes throughout the day as they are bought and sold. ETFs generally have high liquidity and low management fees making them an attractive option for investors.
A stock market index or part of the index itself cannot be purchased but index tracking ETFs are available that track major indexes such as the Dow Jones, S&P 500 and NASDAQ-100. When you purchase a share of an index ETF, you are buying shares of a portfolio that imitates the returns and yields of its tracked index.
A leveraged ETF uses various financial tools and is able to magnify the returns and yields of its tracked index. Double and triple leveraged ETFs are common nowadays.
A double leveraged ETF aims to provide two times return of its tracked index and a triple leveraged ETF aims for three times the return. For example, if the tracked index goes up 1%, the double leveraged ETFs objective will be to go up 2% and vice versa.