Leveraged and Inverse ETFs are new in Bursa Malaysia. Find out about the gains and risks for leveraged and inverse exchange traded funds. Will you consider trading these ETFs?
Contents
Introduction to Exchange Traded Funds (ETFs)
- Portfolio of stocks / bonds / commodities
- Authorized Participant (AP) or Market Maker creates and redeem ETF units
- Management fee for ETF charged
- Intra-day trading available (within same day)
- T + 2 settlement (settlement within 2 days of transaction execution)
- Trade through brokerage account
- More info on ETFs
Leverage and Inverse ETFs
Leverage and Inverse ETFs are trading instruments. It is best used in trending markets with the average holding period of 5 days. The trader needs to be an active nimble trader with a short-term view of the market.
What is Leveraged ETF?
- Aims to deliver twice (2X) the daily performance of an Index.
- Max 30% of fund’s NAV set aside as as margin for investments in futures contracts.
- Max 10% of fund’s NAV invested in debentures with a remaining tenure above 365 days.
Comparable to
- Call warrants
- Margin financing
- Futures
What is Inverse ETF?
- Aims to deliver inverse (-1X) the daily performance of an Index.
- Max 15% of fund’s NAV set aside as as margin for investments in futures contracts.
- Max 10% of fund’s NAV invested in debentures with a remaining tenure above 365 days.
Comparable to
- Put warrants
- Intraday Short Selling (IDSS)
- Futures
| Details | Leveraged & Inverse ETFs | Structured Warrants | Futures Contracts | Margin Account |
|---|---|---|---|---|
| Underlying | Index | Index, Shares | Index, Shares, Commodities | N/A |
| Offer more than 2X leveraged / inverse exposure | No | Yes | Yes | Yes |
| Margin account required | No | No | Yes | Yes |
| Expiration date | No | Yes | Yes | No |
| Possible to lose more than invested | No | No | Yes | Yes |
Leverage & Inverse ETF Risks
- Leverage: Leverage risk as gains and losses are magnified.
- Inverse: Returns will move in opposite direction of underlying index.
- Portfolio turnover risk with higher transactions and more frequent rebalancing.
- Exposure to associated futures investment risks.
- Trading hours difference risks.
Event
- Nov 30, Sat 1:30pm – 5:00pm Embrace the Market Volatility – Making profits in Bull and Bear Markets (eventbrite.com)
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- 5 minute finance with Affin Hwang’s Director of Innovation Lab and Alternative Investment Ms Chong Lee Choo (flymalaysia.org)
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