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Theres one thing in perticular I dont understand... compounding. ALL articles online state that the compounding is a risk for short etfs. But isnt that just as big as a risk for normal etfs???

My thinking is that no matter in which way the ETF trys to mirror the index, it always compounds.

Example for "worst case" compounding for both etfs:

Normal Indexed ETF

  • Day one starting balance = $100 and the market falls 20%
  • Day two starting balance = $80 and the market falls another 20%
  • Day three starting balance = $64 and the market rises 20%
  • Day four starting balance = $76.80 and the market rises another 20%
  • Ending balance = $92.16

Inverse ETF

  • Day one starting balance = $100 but the market rises 20%
  • Day two starting balance = $80 but the market rises another 20%
  • Day three starting balance = $64 and the market falls 20%
  • Day four starting balance = $76.80 and the market falls another 20%
  • Ending balance = $92.16

While the Index ends up back at 100%, volatility can fuck both etfs (not just the short etf)



Submitted September 19, 2022 at 05:07AM by Marlon-lm https://ift.tt/tsTKZ4L

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