Leveraged Sector ETFs: Understanding the Benefits & Risks

Investing in a leveraged sector ETF can provide you with several advantages. Here are the basics of the leveraged sector ETF and what it can do for you.

Sector ETF's

Sector ETF's are investment vehicles that allow you to take advantage of a particular section of the economy. For example, you could purchase a retail ETF and take advantage of the movement of the retail industry. This would provide you with a much better investment than if you were to invest in an individual stock from a particular sector.

Adding Leverage

Adding leverage to a sector ETF can help you increase the amount of money that you make. Many leveraged sector ETF's will provide you with double the amount of return that you would normally expect. For example, if the index that it is tracking goes up by 5 percent, you will actually be able to bring in 10 percent to your portfolio. Therefore, leverage will have the effect of amplifying the movement in the market.

Although this strategy can help you make more money, it can also work against you. It will also amplify movements in the opposite direction as well. Therefore, you need to be careful with this type of investment.