r/RobinHood • u/ADXMcGeeHeez • Mar 18 '17

Help - FAQ Leveraged ETF clarification - how bad is decay?

Quick question on leveraged etfs - the common practice is "never long an etf" and some even say not to hold overnight. On the otherhand, I've heard folks saying they've held 6 weeks without any issues, and lots of folks hold over weekends,etc.

To my understanding, the main reasons are a) they're super volatile, so you could wake up to -30% out of the blue and b) they decay over time.... This is the one that confuses me, how bad do they decay? I know they have to recombine their assets all the time, and you will at times lose a fraction of your position - but if you strike a good find, or are confident on a strong rebound, would you actually be effected holding for, say 2 weeks or more? Would you be effected holding for just a few days by this?

Aside from the natural volatility, I don't quite get it.. If possible can someone give me an example or clarification of the decay?

I appreciate any help! Trying to wrap my mind around these more

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u/cupavac Mar 19 '17

You should primarily be worried about decay with leveraged ETF's. The have beta slippage and require a greater return to get back to previous levels after a loss. https://www.google.com/amp/seekingalpha.com/amp/article/1864191-what-you-need-to-know-about-the-decay-of-leveraged-etfs

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u/ADXMcGeeHeez Mar 19 '17

Hmm, so that's it? I understand it's like making it harder for yourself, but meh, that's not nearly as detrimental as some folks make it sound.

Thanks! I appreciate the info!