Best 2x Leveraged ETFs

Invest in the best 2x leveraged ETFs with Interactive Brokers.

Leveraged exchange-traded funds (ETFs) use financial derivatives and debt to increase the returns of a particular index. These ETFs are commonly used by traders who aim to benefit from the market's short-term price changes. However, they carry greater risks and expenses, which are unsuitable for investors who plan to hold onto their investments for a long period.

This article will explore some of the best 2x leveraged ETFs available in the market, covering different sectors, regions and strategies. It explains how they work, their benefits and drawbacks and how to trade them effectively. 

10 Best 2x Leveraged ETF

Leverage comes with higher risk and volatility, so you should research these types of investments before trading leveraged ETFs. Here are 10 of the best 2x leveraged ETFs that you can consider for your portfolio

1. ProShares Ultra S&P 500 (NYSEARCA: SSO)

The ProShares Ultra S&P 500 ETF seeks to magnify exposure to the U.S. large-cap market without additional cash by providing 2x the daily performance of the S&P 500 index. Its market capitalization is around $2.57 billion. SSO tracks the broad and diversified S&P 500 index, and its relatively lower expense ratio than its peers means lower fees for investors.

2. ProShares Ultra Bloomberg Crude Oil ETF (NYSEARCA: UCO) 

This fund seeks to provide 2x the daily return of the Bloomberg WTI Crude Oil Subindex, which tracks the performance of crude oil futures contracts traded on the New York Mercantile Exchange (NYMEX). The fund has an estimated market capitalization of $742 million.

3. ProShares Ultra QQQ (NYSEARCA: QLD)

ProShares Ultra QQQ (QLD) aims to provide twice the daily performance of the Nasdaq-100 Index. It is suitable for investors who want to increase their exposure to the U.S. tech sector without additional cash. QLD is one of the best-performing leveraged equity ETFs, with a YTD return of over 80% and a market capitalization of around $2.42 billion. It has a high trading volume and tracks a widely followed index that offers exposure to some of the stock market's most disruptive startups.

4. ProShares Ultra MSCI Emerging Markets ETF (NYSEARCA: EET) 

This fund seeks to provide 2x the daily return of the MSCI Emerging Markets Index, which measures the performance of large- and mid-cap securities across emerging market countries. The fund's potential lies in the growth prospects of emerging markets, which may benefit from faster economic growth and tech innovation. With outstanding shares of 425,000, EET has an estimated market capitalization of $22 million. It exposes investors to a broad and diversified basket of emerging market stocks with a relatively low cost and high liquidity.

5. ProShares Ultra Russell2000 (NYSEARCA: UWM)

UWM is an ETF that doubles the daily performance of the Russell 2000 Index, making it ideal for investors who want exposure to the small-cap sector. UWM has about 4.9 million outstanding shares and a market capitalization of around $166 million. It's a popular leveraged ETF with high trading volume and exposure to dynamic sectors like biotechnology, software, retail and healthcare.

6. Direxion Daily Energy Bull 2X Shares (NYSEARCA: ERX)

ERX provides exposure to the U.S. energy sector. ERX's potential depends on the performance of the Energy Select Sector Index, which tracks the performance of about 25 U.S. companies that provide energy-related products and services. ERX has an estimated market capitalization of about $430 million. It has a high trading volume and relatively low expense ratio and tracks the performance of leading energy companies like Chevron, ConocoPhillips and Exxon Mobil.

7. ProShares Ultra Gold (NYSEARCA: UGL)

UGL seeks to double the daily performance of the Bloomberg Gold Subindex SM. With a potential market capitalization of about $186 million, UGL is suitable for investors looking to increase their exposure to gold's daily price movements without additional cash. UGL’s appeal lies in its high trading volume and the fact that it tracks a commodity that offers exposure to a safe-haven asset.

8. ProShares Ultra Technology ETF (NYSEARCA: ROM)

ROM seeks to double the daily performance of the Dow Jones U.S. Technology Index. Comprising major technology companies like Apple and Microsoft, the fund employs leveraged investment techniques to increase returns. ROM is suitable for investors with a high risk tolerance and a bullish outlook on the technology sector, which promises growth and innovation. With a potential market capitalization of $682 million, ROM provides exposure to a diversified basket of technology stocks with relatively low cost and high liquidity.

9. ProShares Ultra Consumer Services (NYSEARCA: UCC)

UCC offers double the daily performance of the Dow Jones U.S. Consumer Services Index, making it a popular choice for investors seeking exposure to consumer discretionary stocks. Its market capitalization is estimated at around $16.5 million. UCC has a high trading volume and offers exposure to some of the market's most dynamic companies, such as Amazon, Starbucks and Home Depot.

10. ProShares Ultra Semiconductor ETF (NYSEARCA: USD)

USD aims to double the daily performance of the Dow Jones U.S. Semiconductors Index through leveraged investment techniques. The fund includes companies like NVIDIA, Intel and Qualcomm and has an estimated market capitalization of $365 million as of July 5, 2023. USD is a relatively low-cost and highly liquid option, allowing investors to benefit from potential growth in the semiconductor industry.

What is a 2x Leveraged ETF?

A 2x leveraged ETF aims to deliver twice the daily performance of its underlying index using borrowed money to magnify returns. To achieve this goal, a 2x leveraged ETF uses a combination of financial instruments, such as futures contracts, swaps, options and margin loans, to create leverage. For example, if the index goes up by 1% in a day, the 2x leveraged ETF should rise by 2%. Conversely, if the index decreases by 1%, the 2x leveraged ETF should drop by 2%.

Advantages of 2x Leveraged ETFs

2x leveraged ETFs have become increasingly popular among investors seeking to amplify their returns. Here are some advantages:

• Greater potential for magnified returns: 2x leveraged ETFs offer the potential for higher returns by using leverage to double the daily performance of the underlying index. This benefit is great for traders looking to gain from short-term market trends.
• Opportunity to enhance portfolio growth: Investors with higher risk tolerance and longer time horizons can benefit from adding 2x leveraged ETFs to diversify their portfolio and potentially increase overall returns. They can invest in ETFs focused on specific sectors, regions or strategies, such as technology, emerging markets or value investing, to benefit from higher returns during favorable market conditions while maintaining a diversified portfolio.
• Flexibility and liquidity of ETFs: 2x leveraged ETFs offer the same advantages as regular ETFs, which are easy to use and trade. ETFs trade like stocks, have low minimum investments and expenses and are transparent. With 2x leverage, investors can enjoy these benefits and increase their returns.

Risk of 2x Leveraged ETFs

While 2x leveraged ETFs can potentially amplify returns, they also come with higher risks and volatility. Risks associated with 2x leveraged ETFs include:

• Amplified market volatility and potential losses: 2x leveraged ETFs can be risky as they use leverage to double daily performance. This can increase gains and losses, leading to greater losses if the market is unfavorable.
• Short-term performance versus long-term investment goals: Investors should be cautious with 2x leveraged ETFs as they follow daily index performance instead of long-term performance, leading to significant deviations from fees, rebalancing, compounding and market conditions. Achieving long-term objectives and expectations can be challenging with these ETFs.
• Impact of compounding returns on investment results: 2x leveraged ETFs can be affected by compounding returns on investments, which can either be positive or negative. This refers to returns earned or lost on previous returns that can accumulate over time. If the underlying index has a consistent upward trend, the 2x leveraged ETF can benefit from compounding returns and outperform the index. However, if the index has a choppy or downward trend, the 2x leveraged ETF can suffer from compounding losses and underperform the index.

Criteria for Choosing the Best 2x Leveraged ETFs

Here are some of the factors to consider when investing in 2x leveraged ETFs.

Performance and Historical Returns

When choosing a 2x leveraged ETF, examine its historical performance and returns to see how well it tracks its underlying index and performs under different market conditions. Note that past performance does not guarantee future results, and 2x leveraged ETFs can experience significant losses in addition to gains.

Expense Ratios and Overall Costs

Consider the ETF’s expense ratio and overall costs, including trading commissions and interest charges. Opt for those with low fees to improve your net returns and lower your breakeven point.

Underlying Index and Sector Exposure

When choosing a 2x leveraged ETF, consider its underlying benchmark index and sector exposure. Choose one that matches your investment objectives, risk tolerance and market outlook. Diversify across different indexes and sectors to mitigate market fluctuations and sector-specific risks. Be mindful of sensitivity to market changes.

Trading Volume and Liquidity

Consider its trading volume and liquidity. High trading volume and liquidity can lead to more efficient execution, lower costs and better price discovery. Avoid those with low volume and liquidity to prevent wide bid-ask spreads, slippage and poor tracking performance.

Where to Invest in 2x Leveraged ETFs

Not all brokers offer access to 2x leveraged ETFs – some may charge higher fees or commissions than others. To help you find the best choices, Benzinga compiled a table of some of the most popular and reputable ETF brokers in the industry. 

Mastering 2x Leveraged ETFs: Maximizing Returns while Managing Risks

Investing in 2x leveraged ETFs can provide traders with the potential to amplify their short-term returns. However, these ETFs also entail higher risks and costs. Before investing, consider factors like the underlying index, sector and strategy. The goal is to invest prudently while effectively managing risk. 

Frequently Asked Questions 

Best 2x Leveraged ETFs Methodology

To compile a list of the best-leveraged ETFs, several factors were carefully evaluated. ETFs with a consistent track record of delivering approximately 2x the daily performance of their underlying index, relatively low expense ratios, narrow bid-ask spreads, high liquidity and substantial trading volumes were prioritized.