Understanding Leverage funds

In the financial paraphernalia, a procedure to multiply any gains or losses expected in any form of investment is known as leverage. In order to attain leverage, money is borrowed or fixed assets are bought.

Types of leverage funds:

  1. Leverage ETFs (Exchange-traded funds): the leverage ETFs are designed to amplify the investment returns by twice or thrice its actual input amount. The return amount is calibrated on a daily basis. The gains produced during the entire process are exacerbated. When the market is volatile, the exchange-traded funds can also reverse gains to losses. If you’ve bought a leveraged ETF, you don’t need to draw a margin while purchasing securities.
    The leveraged ETFs are usually traded with the Amex (American express), a company registered under NYSE.
    If you are a long-term investor, do not work with leveraged ETFs as the market volatility plays a destroying effect on the leverage ETFs.
  2. Leveraged Equity: Leveraged equity heighten the returns on the existing return ratio on your investment vehicle. The different investment schemes for achieving leverage returns are the shipping industry and real-estates. By investing in these instruments you are expected to attain twice or 4x the amount of leveraged returns you’d have expected in other instruments.
    Leverage equity is always dealt in cash. However when the cash flow is interrupted this type of leverage encounters a blow. Also the risk management in handling such funds is difficult at times.
  3. Margin: The reach of the financial market in the form of stock and forex markets has been immense and thus, the loss or gain margins for a particular investment vehicle are also conspicuous. This means, the gains produced during investment dealing has been enthralling and massive, the losses have also been quite disheartening.
Related Articles