DigiFinex will launch ETF trading pairs ADA3L/USDT and ADA3S/USDT at 11:00 (GMT+8) on August 5, 2021.
Leveraged ETFs are free of margin, free of management fees, and multiplied returns.
Introduction to leveraged ETFs:
1. What is a leveraged ETF?
Leveraged ETF is a popular innovative financial derivative in the digital asset industry recently. It has both the characteristics of spots and futures. It is a transactional product that can track a certain multiple of the target asset’s return on a daily basis under the premise of a given underlying asset. When the tracked asset rises or falls, the leveraged ETF will multiply its fluctuations according to the leverage ratio (such as 2 times, 3 times or -1 times, -2 times). For example, BTC price increases by 1%, BTC3L product net value will increase by 3%, BTC3S product net value will fall by 3%.
Leveraged ETF products are originated from the traditional financial market, and are essentially funds managed by DigiFinex's senior asset management team. Through the combination of man and machine, positions are dynamically adjusted, allowing investors to easily build their own constant leverage portfolio without understanding the complex mechanisms. While amplifying investment income, it also avoids the risk of liquidation. The ETF model is simple and is no different from ordinary currency transactions. The transaction threshold and risk are lower than traditional futures.
2. Advantages of leveraged ETF
Spot trading: It is similar to the currency trading mode. No margin is required. They can be traded as spot trading.
High rate of utilization: In spot transactions, when the amount of funds is large, the longer the transaction time span, the higher the cost of funds. When the amount of funds is small, the profit brought by fluctuations is too little. Trading ETFs can multiply returns and become an effective risk hedging tool.
No risk of liquidation: Leveraged ETFs are operated and managed by DigiFinex's senior asset management team. The management team will dynamically rebalance the fund’s investment portfolio and automatically increase and decrease positions based on the profitability of the account to ensure that users will not experience liquidation.
Leveraged ETF allows users to use the mode of spot trading to enjoy the multiple benefits brought by futures contracts.
Example of leveraged ETF trading
User D is long on BTC in the near future, and he puts out 10,000 USDT to trade BTC3L (Bitcoin triples long). After a period of time, BTC will rise by 10%, leveraged ETF will rise by 90%, and finally the assets of D will rise from 10,000 US DT to 13,000 USDT. The income increases by 3 times. If the ETF is not traded by leverage, the assets of D will only increase to 11,000 USDT.
User D is short on BTC recently and took out 10000 USD on limit transaction of BTC3S (Bitcoin triple short). After a period of time, BTC will fall by 10%, and leveraged ETF will rise by 90%. D’s assets will increase to 13,000 USDT. If D do not trade through leveraged ETFs, the assets of D will only increase to 11,000 USDT.
If after D buys ETF and BTC, the market moves in the reverse direction, D will lose by 3 times, but the rebalancing mechanism will protect D from liquidation. Through the dynamic balance of the investment portfolio, immediate increases and decreases of positions can be conducted for risk control.
(Risk warning: If the direction judgment is wrong, there will be a risk of the price approaching zero under extreme market conditions.)
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Aug 4 2021
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