3 Ways Leveraged ETFs Help Traders Navigate Markets

Navigating capital markets requires intangible tools like intuition, mental acuity, and even a bit of luck. Then comes the tangible tools to maximize profit, like leveraged ETFs, which can help traders in a variety of ways.

Getting the extra exposure is an obvious benefit of leveraged funds. Depending on the level of exposure, they can double or even triple profits. But there are other benefits that come from adding leveraged ETFs to a trader's toolbox.

Broad-Based Exposure

One of the prime benefits of leveraged ETFs and ETFs in general is the broad-based exposure they can give as opposed to stocks by themselves. Analogous to sports, it's like having the ability to trade a whole team as opposed to individual players.

Say the S&P 500 is trending higher; traders can ride the momentum of the whole index as opposed to specific constituents that occupy the greatest share of the index. For example, a trader who's bullish on the S&P 500 can maximize their profit potential using triple the exposure with the Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL).

Another example is for traders who are eyeing interest rates and forecasting that emerging markets (EM) will gain as the strength of the dollar wanes. In that case, rather than trader-specific equities that cater to EM, they can essentially bet on the field with the Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC).

Tactical Diversification

When it comes to leveraged ETFs, traders can further segment their exposure to various markets, offering them tactical diversification. Whether it's by market capitalization, asset class, or a specific industry, traders have a plethora of options to game the markets.

Traders can get exposure to specific mid- or small-cap names, but they can also trade whole indexes that cater to these market sizes. For example, traders can use the Direxion Daily Mid Cap Bull 3X Shares (MIDU) or the Direxion Daily Small Cap Bull 3X Shares (TNA).

If gold prices continue to push higher, traders can take a backdoor play on the precious metal using miners with the Direxion Daily Gold Miners Bull 2X ETF (NUGT). Alternatively, if they predict that artificial intelligence (AI) will continue its bullish run, they can use funds like the Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 2X ETF (UBOT).

Be the Bull and the Bear

Traders understand that maintaining flexibility in the markets is imperative, especially when they get volatile. That means having the ability to play both sides of the fence in terms of markets trending higher or lower.

If a trader holds a position in a single tech stock that experiences a sudden reversal along with the rest of the sector, they can take a bearish stance. Rather than short the same stock or similar stocks within that sector, traders can hedge their current position and even potentially profit with the Direxion Daily Technology Bear 3X ETF (TECS).

If all of a sudden the Federal Reserve pivots from lowering interest rates due to persistent high inflation and bonds start to exhibit weakness, investors can use the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV). If rates  -- and subsequently yields -- fall, traders can get bullish again with the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF).

Navigating the markets with just a bullish take is akin to having a vehicle that can only accelerate forward. Leveraged ETFs can provide traders with the ability to move in all directions, allowing them to profit in any market environment, irrespective of whether it's up, down, or sideways.


For more news, information, and analysis, visit the Leveraged & Inverse Channel.

Read more on ETFTrends.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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