BigONE Leveraged Product Tips
What is a leveraged ETF product?
A leveraged exchange-traded fund (ETF) product is a marketable security that uses financial derivatives and debt to amplify the returns of an underlying index. While a traditional exchange-traded fund typically tracks the securities in its underlying index on a one-to-one basis, a leveraged ETF product’s rise and fall are three times (or five times) the rise and fall of its underlying asset. For example, for every 1% increase in BTC, BTC3L (3 times long BTC) increases 3%, and BTC3S (3 times short BTC) decreases 3%. Users do not need to pay the collateral assets to achieve the effect of leveraged trading on the target asset. The product has no expiration date, no risk of liquidation, but it contains the risk that the net value might close to zero.
What are the naming rules and underlying assets of leveraged ETF products?
BigONE currently has 3X and 5X long/short ETF trading pairs. Take the BTC 3X Long product as an example. It’s been fully named as BTC 3X Long, abbreviated as BTC3L. Corresponding to the BTC 3X short product, it is named as BTC3S. From the product name of the leveraged ETF, it can be seen that the currency of the underlying asset (which is BTC), the multiple of long and short (which is 3 here), and whether it is long or short.
What is the advantage of leveraged ETF compared with spot?
Compared with spot trading, the same asset leveraged ETF will generate 3 times the profit.
Example: Users purchase 1 asset of BTC3L and achieve 3 times profitability in a unilateral rise, and all of this will be managed by platform fund managers, users can easily build their own leveraged investment portfolio without knowing the specific mechanism.
What are the advantages of leveraged ETF products compared to leveraged trading?
Convenient operation, no deposit required.
Example: A user purchases the BTC3L, and the operation is the same as making a spot transaction. The user only needs to buy and sell at the transaction price. His/Her BTC3L will be managed by the platform fund manager, he/she does not need to borrow money or pay the secured assets to achieve the purpose of leveraged trading.
What are the advantages of leveraged ETF products compared with perpetual contracts?
Leveraged ETF products have a unique adjustment mechanism, no margin is required, as well as no risk of liquidation.
However, in the perpetual contract, users need to pay a margin, and if liquidation occurred, users might lose all their assets.
Why won’t leveraged ETF products liquidate?
A: The unique rebalancing mechanism of leveraged ETF products, When profitable, it will automatically increase the position after the adjustment. In the event of a loss, the position will be automatically reduced after the adjustment to avoid the risk of being liquidated. The adjustment mechanism is to adjust the position of the contract behind each product, and the number of currency holdings will not change.
How can leveraged ETF products amplify profit and loss?
Taking BTC3L and BTC3S as an example, if BTC rises by 5%, then BTC3L will generate 15% profit and BTC3S will generate 15% loss.
How does leveraged ETF perform in a unilateral market?
The unilateral market rises more and falls less. Assuming that BTC rises by 5% every day, the cumulative increase after 3 days is 15.76%, the cumulative increase for BTC3L is 52.09%, and the cumulative decrease for BTC3L is -38.59%.
Calculation formula:
- BTC cumulative increase and decrease=105%*105%*105%-1=15.76%
- BTC3L cumulative increase and decrease=115%*115%*115%-1=52.09%
- BTC3S cumulative increase and decrease=1–85%*85%*85%=38.59%
How do leveraged ETF products perform in the volatile market?
The market fluctuates, and the net value may wear out. Assuming that BTC’s rise and fall within 4 days are 5%, -5%, 5%, and -5%, the cumulative rise and fall are -0.5%, and the cumulative rise and fall of BTC3L It is -4.45%, higher than -0.5%*3= -1.5%. Therefore, under volatile market conditions, leveraged ETF products may wear out.
Calculation formula:
- BTC cumulative increase and decrease=105%*95%*105%*95%-1= -0.50%
- BTC3L cumulative increase and decrease=115%*85%*115%*85%-1= -4.45%
- BTC3S cumulative increase and decrease=85%*115%*85%*115%-1= -4.45%
How to buy leveraged ETF products?
The purchase method of leveraged ETF products is just like spot trading. Users enter the ETF trading page and use USDT to make purchases.
For more information about ETF, please check: https://bigone.zendesk.com/hc/en-us/articles/900002710806-BigONE-Leveraged-ETF-Product-FAQ
