Trading Strategies

Abstract

The LETF is a relatively new class of investment instruments with limited historical data for judging its performance. The embedded leverage makes LETFs risky and speculative in nature. There has been lots of skepticism among market participants and market regulators since witnessing their poor performance during the recent financial crisis in 2008–2009. Despite this concern, however, the LETF has been a very popular class of ETFs, attracting lots of interest among, in particular, short-term traders, who use LETFs to express their directional views on the underlying benchmarks. LETFs also offer a relatively low-cost solution for retail investors to implement certain trading strategies that were quite costly for them in the past. The volume of LETF trades represents a substantial portion of total ETF trades even though the assets under their management are only a small fraction of the entire ETF markets.