Leveraged ETFs, Leveraged Portfolios

[Helix]

Well, at least this mixes well with alternatives that often have US government bonds as collateral.

[SwissDan]

@cubanpete_the_swiss

But whenever the shit hits the fan you are fucked…

What do you mean by that?

CFDs are mostly used by day traders. It’s not economical to keep them overnight, as you pay the swap rate. I don’t think you can compare them to leveraged ETFs. They are more similar to Futures, where you pay also for financing the leverage.

[cubanpete_the_swiss]

@SwissDan

What do you mean by that?

That you signed a contract to accept their price, even if they have “technical difficulties”. But as I said, they want to keep clients so they probably give them better price than a hedge would cost.

You always pay some kind of interest for your leverage if you hold overnight. Either separate or it is included in the price. What do you think, those ETF folks are that generous that they pay it for you?

I thought it was a good idea to list all the possibilities you have for leveraging. Every method has its pros and cons…

[cubanpete_the_swiss]

@SwissDan

Futures, where you pay also for financing the leverage

The interest is part of price finding for futures. You don’t pay it separately. Most brokers even accept T-Bills as collateral for the margin.

[Mirager]

@cubanpete_the_swiss

CFD, Contract For Difference

Very early on starting investing in eToro (yes!) I realised a lot of what they offered were CFD-only. I did some reading and concluded that CFDs are indeed nothing to be held for any longer than…days. That spurred me to go to a real broker.

[Tony1337]

@SwissDan

where you pay also for financing the leverage

You ALWAYS pay for the financing of the leverage, either directly or indirectly. Doesn‘t matter which type.

[Helix]

@oslasho

i’ve heard/read arguments like “if you also hold cash, a leveraged etf makes no sense” or “just increase stocks, which achieves the same but cheaper/simpler” or similar. my own logic, which could be nonsensical, is that i’m trying to hold different assets with different purposes and that it at least could make sense.

Sure, one can think up all kinds of reasons why they need cash and levered ETFs. Your cash just costs you more (e.g., an additional 2% annually for 2x S&P 500). That is on top of the 1% that the bank normally takes from the market interest rate.

Though, in CHF and for low amounts and if the market interest rate is negative, banks in Switzerland gave you some (fractions of) percents.

Additionally, since levered ETF normally aren’t short CHF, you get a net long/short FX position.

If that was me, I would really try and make that initial reason disappear. Especially, if we aren’t talking about real things (which mental accounting is not).

[oslasho]

guess i just really struggle with some part of that and thus do mental accounting. gonna try do better thanks!