Leveraged ETF
A leveraged ETF uses derivatives and borrowing to deliver a multiple, such as 2x or 3x, of an index's daily return, or the inverse of it.
Leveraged ETFs aim to magnify daily moves. A 2x S&P 500 fund targets twice the index's return for a single day; a -1x or -2x (inverse) fund targets the opposite. They achieve this with swaps, futures and other derivatives and reset their leverage every day.
Because of the daily reset, returns over longer periods can differ sharply from the stated multiple. In choppy, sideways markets this effect, often called volatility decay, erodes value even if the index ends flat.
Example: an index rises 10% one day and falls 9.09% the next, ending where it started. A 2x fund rises 20% and then falls 18.18%, leaving it about 1.8% lower overall. Over weeks or months of swings, the gap can grow much larger.
Fund sponsors and the SEC warn that leveraged and inverse ETFs are designed mainly for short-term trading by experienced investors who monitor positions closely. Their expense ratios are also typically higher than those of plain index ETFs.