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Updated 2mo ago.
Updated 2mo ago.
Leverage involves using borrowed money or financial instruments to amplify the potential return of an investment. If the investment goes up, gains are multiplied; but if it goes down, losses are amplified as well. It is a double-edged sword that increases both the potential for gains and the risk of losses.
In Canada, leveraged ETFs amplify the daily movements of an index:
If the TSX 60 goes up 1% in a day, HXU.TO goes up about 2%. But if the TSX 60 drops 1%, HXU.TO drops about 2%.
Leveraged ETFs are designed for short-term trading, not long-term investing. Over longer periods, the "daily rebalancing" effect can erode returns even if the underlying index rises. Beginner investors should stick to unleveraged ETFs like XEQT.TO or VFV.TO.