trading_upp......What you say makes more sense than anything else on this message board. And in passing I will say one more thing. Direxion, the fund managers do not want average joe's trading these instruments. Why? Because what you are trading essentially has no value other than whatever numbers they attach to each ETF. If everyone went to trading ETFs, there would be no need for a stock exchange. In reality, ETFs are nothing more than a rolling on-line Crap game. ETFs were envisioned and designed by Hedge Fund managers, for Hedge Fund managers. And as long as I can legally use them, I will.
It happens pretty quick.
Follow this exercise:
Nov 2, 2009 XLF Low 13.67 FAZ High 24.17
Feb 5, 2010 XLF Low 13.45 FAZ High 22.61
Jul 2, 2010 XLF Low 13.41 FAZ High 18.74
For the 3 months Nov, Dec and Jan ~6% decay
For the 4 months Feb-June ~16% decay
So rough average after a flat month ~3% decay.
If you shorted the XLF on Nov 2, 2009 you'd be even today. If you bought FAZ on Nov 2, 2009 you'd be down 22%.
Leveraged ETFs do decay over time, as explained at the Direxionshares website under Education. You can see the decay right here:
opcrew..... Serious answer...ETFs do NOT decay. That is like an urban myth. First off, There is nothing to decay. ETFs are just arbitrary numbers based on indices performances. ETFs are no different than walking into a casino and betting even/odd at the roulette wheel. ETFs are essentially; legalized gambling. They were designed by and for Hedge Fund managers to be able to up their betting capacity. ETFs were never intended for the average joe to be able to walk in from the street and use them. Funny how rules and laws work in the USA. The rest is history. But, the powers that be still don't want you and me trading ETFs. So they will get a Jim Cramer or another talking head to come out and stress the dangers of using ETFs. Funny, but they never really say why?
You must be a Direxion employee to spread false information like that to pump your fund.
Use this basic math example and try to argue against it:
1000 + 10% = 1100
1100 - 10% = 990
990 + 11.111% = 1100
Now use those percentages on a 3x ETF (let's say FAZ is at $10):
$10 + 30% = $13
$13 - 30% = $9.10
$9.10 + 33.333 = $12.13
So let's see here. S&P is back to it's 1100, while FAZ is off by 87 cents, or 6.7%. Explain how the math is wrong there, please.
Most likely will never go down to zero because Direxion (and other providers) are making good money from them. If they let one go to zero, that one won't be a product anymore, and they won't make any more money from it. They'll do a reverse split long before it gets to zero.