ETFS 3x Daily Long FTSE 100 (UK3L) is designed to enable investors to gain a three times daily leveraged âlongâ exposure to FTSE 100 Net of Tax (FTSE 100) by tracking the FTSE 100 Daily Super Leveraged RT TR Index (the âIndexâ). A three times daily leveraged long exposure means that the product is designed to reflect three times the daily percentage change in the FTSE 100 (the âbenchmarkâ). For example, if the FTSE 100 was to rise in value by 5% on a particular day, the product would increase in value by 15% on that day
It does indeed. It makes returns - (or, yes, losses) - on the index tracker perform more like an equity. The FTSE simply doesnât move in big leaps like that though, so if you know what youâre doing this is a really nice way to get good gains over short to mid term periods. I use it a fair bit in my HL account.
And what if there is a >33.3% drop in value? FTSE100 droped from 6,690 to 3,800 in 2008. Would you be required to cover the margin call or to be forced to sell for ÂŁ0?
Iâm not sure you understand the product, so youâre probably best not investing in it. Read the literature a bit to get informed Iâd suggest. Itâs an ETF - so just like buying a stock. Gains, or losses, arenât realised until you sell. Thereâs no âmargin callâ on it.
I thought the point of this channel was to request access to products that are not available today? Access to a product doesnât mean you have to invest in it. Some people might want to though
Ha! I like your honesty The great thing about not knowing about something is we get an opportunity to learn eh?
The thing is any investment carries risk. Itâs up to us to assess risk. If we donât understand how something works itâs probably best avoiding it. I wouldnât have touched anything related to CDOs in 2007, for example
My understanding: no margin calls but levered etfs are âmagnifiersâ - if the stock market goes down 100pts, this one goes down 300 (and similarly up).
Strong -1 from me - theyâre not the right products for FT given FTâs intended market.
Yep Rod, thatâs right. So I might be misunderstanding the point of Freetrade. Itâs not just a platform for people make choices on, like any other ISA âcontainerâ? Ie if I want to invest in something and put it in my ISA, it doesnât mean you have to, and vice versa?
It is a platform but the company aims primarily to serve the large majority of people who arenât currently investing or âI have a pension but dunno whatâs in itâ, that group much more than smart, adept, traders and investors (and I expect youâre one of those) who are fairly well served by the market already.
That emphasis means some financial products that could in theory be added to the platfom wonât be, on the grounds that to the average retail investor theyâre more like gambling than investing. Eg CFDs, margin accounts etc.
And imho levered etfs. But I donât work for FT, so donât quote me on that, maybe @Freetrade_Team1 will be along to correct me where needed
This has been an interesting debate! There is a case to be made in favour of leveraged ETFs in certain situations of course. However, hereâs Freetradeâs position when it comes to leveraged ETFs.
As a general rule, we donât think that margin / leverage exposure is suitable for our audience as weâre building a service for first time investors. Weâve explained this principle in more detail here -
The FCA also seems to consider these securities as unsuitable for less experienced investors. Weâre not required to do an eligibility assessment in order to give investors access to stocks thatâre traded on the âmain marketâ e.g. in the FTSE 250. But we would be required to do an assessment if we wanted to offer leveraged ETFs.
So at the moment, we have no plans to add this type of ETF to our stock universe.
Thanks Alex, and Rod. Yes, I see the mission now and understand. I think a leverage index tracker is a more complex product, by the very nature that itâs âgearedâ, so I wouldnât recommend it to a beginner. But at the same time itâs also miles from CFDs, etc (which Iâd agree with Rod on are more akin to gambling). I would put something like this ETF as a stepping stone - because at the end of the day it is still based on an index, which is far more âsmoothedâ than investing in equities. This platform offers investing in typical US equities, which Iâd proffer carry far more risk to amateur investors than an index tracker.
So I understand the stance of Freetrade but at the same time encourage all readers of this thread to understand the difference between the underlining index being leveraged and a plain equity. If you donât understand a companyâs finances then buying an equity (like, for example, Netflix) is again no different to gambling.