Q: What is a leveraged ETF?
A: Leveraged ETF is a financial derivative that is very popular in traditional financial markets. It is a trading product that tracks the profit and loss rate of the underlying asset (such as BTC) with leverages (such as 2 times, 3 times, or -1 times, -2 times). If the BTC price increases by 1%, the corresponding 2x and 3x leveraged ETF products will increase by 2% and 3%; while the corresponding -1x and -2x products will fall by -1% and -2%.
A: Essentially, the leveraged ETF product is a fund run by a qualified financial team. Each ETF product fits a certain number of futures positions. The fund manager changes the futures positions dynamically to retain set leverage for the product for a defined period of time. A professional team is responsible for the investment portfolio management and maintenance, enabling investors to easily create their own constant leveraged investment portfolio without knowing the precise process.
A: The first batch of ETF pair are as follow
BTC3L/USDT(3x BTC long）
BTC3S/USDT(3x BTC short）
ETH3L/USDT(3x ETH long）
ETH3S/USDT(3x ETH short）
Q: What can I use to buy leveraged ETF products?
A: Leveraged ETFs can be purchased by USDT.
Q: The naming rules of leveraged ETF products?
A: BTC3L stands for 3x long for BTC, while BTC3S stands for 3x short for BTC.
Q: Is there liquidation? What is a rebalance mechanism?
A: We usually rebalance the investment portfolios behind the leveraged ETF every 24 hours in order to avoid widening the gap between the leverage ratio of the portfolio and the agreed ratio. When there is a sharp fluctuation and the fluctuation range of the underlying asset exceeds the threshold as compared to the previous rebalancing point (initially, we set the threshold for 3x short and 15% long, if other leverages are available in the future, the threshold may be adjusted), we will perform temporary rebalancing to control the risk of the investment portfolio. The rebalancing is only for the party that has lost money in the volatile market. For example, if the BTC rises by 15%, we will rebalance the BTC3S product, and will not adjust BTC3L. (Risk warning: there will be a risk that the price will approach zero in extreme conditions)
Q: What are the similarities and differences between leveraged ETF products and futures contract products?
A: Similar to futures contract products, leveraged ETF products are derivatives with leverage effects, which can amplify investors' returns and become a cheap risk hedging tool. However, compared to futures contracts, leveraged ETF products have the following unique characteristics:
- No margin required and no risk of liquidation (risk warning: if the direction is wrong, there will be a risk that the price will approach zero in extreme conditions). For investors who don't have much time to keep an eye on the market, buying leveraged ETF products can save a lot of time and energy.
- Fixed leverage times. For futures holders, as asset prices change, the leverage of the contract may change, which deviates from the original intention of investors. Take investors who buy a contract product with low leverage as an example. When asset prices rise sharply, the leverage times of the investor's contract product will become very high, which deviates from the investor's original risk appetite. The leveraged product leverage ratio is basically constant, which allows investors to better comply with their investment plans.
Q: What are the similarities and differences between leveraged ETF products and leveraged spot trading?
A: Compared with leveraged spot trading, leveraged ETF products also do not require margin, and there is no risk of being liquidated. At the same time, compared to leveraged spot trading funds, the holding rate of leveraged ETF products is lower.
A: There is, at CoinTiger leveraged ETF has the same fees as the usual trading fees
Trading Fees:taker 0.15%, maker 0.08%
CoinTiger charges a daily management fee of 0.03% (Now CoinTiger adopts a dynamic management fee rate which is displayed on the relevant ETF product's trading page) to pay the necessary fees such as the funding rate and transaction fee. The management fee is reflected in net value and will only be charged at 00:00 Singapore time. If you do not hold the ETF product at the time point, no fees will be incurred.
Each day, leveraged tokens will have their target performance; so for example, each day (from 00:02:00 UTC to 00:02:00 UTC the next day) ETH3L will move 3x as much as ETH.
However, over longer time periods leveraged tokens will perform differently than a static 3x position.
For instance, say that ETH starts at $200, then goes to $210 during day 1, and then to $220 during day 2. ETH increased by 10% (220/200 - 1), so a 3x leveraged ETH position would have increased by 30%. But ETH3L instead increased by 15% and then 14.3%. On day 1 ETH3L increased the same 15%. Then it rebalanced, buying more ETH; and on day 2 it increased 14.3% of its new, higher price, whereas a 3x long position would have just increased another 15% of the original $200 ETH price. So during this 2-day stretch, the 3x position is up 15% + 15% = 30%, but ETH3L is up 15% from the original price, plus 14.3% of the new price--so it's actually up 31.4%.
This difference comes because the compounded increase in a new price is different from moving up to 30% of the original price. If you move up twice, the second 14.3% move is on a new, higher price--and so it's actually a 16.4% increase on the original, lower price. In order words, your gains compound with leveraged tokens.
Leveraged tokens' performance will be 3x the underlying performance if you're measuring since the last rebalance time. In general leveraged tokens rebalance every day at 00:02:00 UTC. This means that the trailing 24h moves might not be exactly 3x the underlying performance, rather the moves since midnight UTC will be.
In addition, leveraged tokens that are over-leveraged rebalance whenever their leverage reaches 33% higher than its target. This happens, roughly, when the underlying asset moves roughly 11.15% for BULL tokens, 6.7% for BEAR tokens, and 30% for HEDGE tokens. So, in fact, the leverage token performance will be 3x the underlying asset since the asset last moved 6-12% that day if there was a large move and the token lost to it, and since midnight UTC if there wasn't.
If the movement of the underlying asset on days 1, 2, and 3 is M1, M2, and M3, then the formula for the price increase of the 3x leveraged token is:
New Price = Old Price * (1 + 3*M1) * (1 + 3*M2) * (1 + 3*M3)
Price movement in % = New Price / Old Price - 1 = (1 + 3*M1) * (1 + 3*M2) * (1 + 3*M3) - 1
A: As a product that has been tested in traditional financial markets, leveraged ETF products are suitable for most investors. However, this product is particularly suitable for investors who believe that the market undergoes a one-direction trend and investors who do not want to assume the risk of liquidation. However, there will be more wearings for ETF products in volatile markets with the existence of management fees.
Take the BTC3L as an example. If the daily trend of BTC is + 10%, + 10%, + 10%, + 10%, then the 4-day yield of this product is 185%, higher than 3 times of the 44% increase amount; if the daily trend of BTC is -10%, -10%, -10%, -10%, then the 4-day loss of the product is 76%, lower than the 3 times of 35% decrease amount; However, if the daily trend of BTC is + 10%, -10%, + 10%, -10%, then the product's 4-day yield is -17% where the loss is higher than 3 times of -3% decrease amount of BTC spot trading.
Q: How to buy leveraged ETF products?
A: There is an EFT trading area on CoinTiger official website and APP.
Warning
Leveraged ETF is a tradable product that tracks three times the daily profit of underlying assets. Users shall pay attention to the gap between the actual net value of the product and the latest price when placing an order. If you opened an order in the opposite direction (up or down), there is a risk that the price will approach zero in extreme conditions. Leveraged ETF is a derivative that subjects to high risks. Please beware of the risk.
The leveraged ETF market on CoinTiger is operated by FTX with its own series of assets combination and calculating mechanism to realize Leverage Tokens. CoinTiger only serves as a platform for trading, please take note of risks before you start investing.