Why Some Leveraged ETFs Are Built for Trading and Others for Investing

Would you haul out an extension ladder to grab something off the top shelf in your kitchen? Of course not, that’s what a step stool is for. But if you need to get on the roof, that extra reach can certainly come in handy but ultimately, more height can mean a bigger fall. A similar logic applies to leveraged ETFs.

In simple terms, leveraged ETFs use financial tools to magnify an index’s daily gains and losses, allowing investors to take on more market exposure without investing more money. The most talked-about leveraged ETFs tend to be of the extension-ladder variety, offering 2x or 3x the daily performance of the underlying index they track. But there are also lightly leveraged options that are intended for longer-term investing in the 1.25x to 1.3x leverage range.

Many traders need to decide which kind of leveraged ETFs to choose. You may think you need the fund with the most leverage, but the choice is often more nuanced. For instance, some lightly leveraged ETFs are increasingly positioned as long-term portfolio tools, whereas traditional 2x and 3x leveraged ETFs are often considered more tactical trading instruments, better suited to be bought and sold in a single day.

It’s easy to lump all leveraged ETFs together, but the risk differs significantly between fund types. In many respects, a 1.25x leveraged ETF has more in common with a traditional ETF than with a 2x or 3x daily leveraged ETF.

For example, on a day when the S&P 500 is up 0.5%, a 1.25x leveraged fund might gain 0.63%. On a $1,000 investment, that would be about a $6.25 gain, compared with $5 for an unleveraged investment. It’s not a massive difference, but it can potentially become more meaningful when compounded over time.

A 3x daily leveraged fund, by comparison, would gain approximately 1.5%, or $15 on a $1,000 investment. That’s nearly $9 more than the lightly leveraged fund. Now, that sounds great in a rising market, however leverage also magnifies losses. While that’s true for any leveraged security, the potential for declines on a 2x or 3x leveraged fund is greater than on a lightly leveraged ETF.

Consider how three hypothetical ETFs might perform if their underlying index rose or fell by 1% on each of three consecutive days.

FOR ILLUSTRATION PURPOSES ONLY. ETF RETURNS CAN DIFFER BECAUSE OF FEES, EXPENSES, FINANCING COSTS, TRACKING DIFFERENCES AND THE PRECISE WAY LEVERAGE IS IMPLEMENTED.

After three days in the illustrated example, the lightly leveraged fund’s losses remain relatively close to the unleveraged ETF, while the performance gap widens considerably for the 3x fund.

Should your investment thesis prove incorrect, losses can accumulate quickly, particularly in higher-leverage products where recovery requires increasingly larger gains. That’s because recovering from a loss requires a larger percentage gain because the recovery occurs on a smaller asset base. For example, a 10% loss requires an 11.1% gain to get back to even.

The choice between a 2x and 3x fund ultimately comes down to how much risk a trader is willing to accept. Both may be used to express a short-term market view or trade around a market event. However, a 3x fund will magnify both gains and losses more sharply than a 2x fund, making timing and risk management even more important.

Many investors are likely familiar with the BetaPro 2x leveraged and inverse leveraged suite of funds, but a growing number of funds now also offer 3x versions, with similar fee structures.

How leverage works within these funds is important to understand. For starters, 2x and 3x leveraged ETFs target a multiple of an index’s daily return, not its long-term performance. That’s because the leverage gets reset at the end of each trading day. If the fund gains, the fund provider needs to top up its exposure the next day to keep it aligned with its target. The opposite happens when a fund experiences a loss. In that scenario, the provider pulls back some of the leverage, depending on the fund’s strategy, to ensure the fund isn’t overleveraged for the day. Here’s a deeper dive into how daily rebalancing works.

While the daily reset helps the fund deliver its targeted daily leverage, it also contributes to something called volatility decay . Because gains and losses compound on a changing asset base, a leveraged ETF can lose value, even if the underlying index ends up flat. The longer someone holds a higher-leveraged ETF, the greater the chance its performance will not match the underlying index return, especially if the fund experiences high volatility.

Some lightly leveraged ETFs may experience less performance drag from volatility because they are designed to float within a certain leverage range rather than targeting a fixed daily multiple. As a result, they may require less frequent rebalancing than traditional 2x or 3x leveraged daily-reset ETFs.

Matching Leverage to Your Goal

Deciding between a lightly leveraged and a higher-leveraged fund really boils down to your goals, timing and risk tolerance. Here are some potential use cases

Academic research suggests that some leverage can improve returns, but more is not always better. As leverage increases, the impact of that volatility grows disproportionately, making highly leveraged funds more vulnerable to performance drag over time.

That helps explain why 2x and 3x leveraged ETFs are generally viewed as tactical tools for expressing short-term market views. In contrast, some lightly leveraged ETFs are increasingly being used as longer-term portfolio building blocks.

Put another way, moving from 1x to 1.25x represents a relatively modest increase in market exposure. Still, the jump from 1x to 3x fundamentally changes both the risk profile and the intended use case of the investment. The key question isn’t whether leverage is good or bad. It’s how much leverage, if any, makes sense for your investment goals, time horizon and tolerance for risk.

DISCLAIMERS

Commissions, management fees and expenses all may be associated with an investment in products (the “Global X Funds”) managed by Global X Investments Canada Inc. The Global X Funds are not guaranteed, their value changes frequently and past performance may not be repeated. Certain Global Funds may have exposure to leveraged and inverse leveraged investment techniques that magnify gains and losses which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the prospectus. The prospectus contains important detailed information about the ETF. Please read the relevant prospectus before investing.

The Global X Funds include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in shares of a BetaPro Product decreases in value.

The BetaPro Products consist of our Daily Bull and Daily Bear ETFs (the “Leveraged and Inverse Leveraged ETFs”), Inverse ETFs (the “Inverse ETFs”), and our BetaPro S&P 500 VIX Short-Term Futures™ ETF (the “VIX ETF”) and can offer opportunities for enhanced returns or hedging strategies, but it’s essential to understand and accept the associated risks. Leveraged ETFs aim to amplify the returns of an underlying index, which can lead to higher gains, but they also magnify losses in downturns. Similarly, inverse ETFs seek to profit from declines in the underlying index, meaning they can perform inversely to the market, but losses can accumulate quickly if the market moves against expectations. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in shares of a BetaPro Product decreases in value. Investors should be aware of and understand their risk tolerance and capacity, and conduct their research before investing. An investment in any of the BetaPro Products is not intended as a complete investment program and is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment. Please read the full risk disclosure in the prospectus before investing. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

An investment in any of the BetaPro Products is not intended as a complete investment program and is appropriate only for sophisticated investors who have the capacity to absorb a loss of some or all of their investment. Please read the full risk disclosure in the prospectus before investing. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.

This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase investment products (the “Global X Funds”) managed by Global X Investments Canada Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor.

All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

Global X Investments Canada Inc. (“Global X”) is a wholly owned subsidiary of Mirae Asset Global Investments Co., Ltd. (“Mirae Asset”), the Korea-based asset management entity of Mirae Asset Financial Group. Global X is a corporation existing under the laws of Canada and is the manager, investment manager and trustee of the Global X Funds.

© 2026 Global X Investments Canada Inc. All Rights Reserved

Published October 26 2026