For those traders who want to apply alternate strategies to the commodity ETF market, here is a list of both leveraged and inverse ETFs, broken out by commodity type, both broad and specific.
What Are Leveraged and Inverse ETFs?
A leveraged commodity exchange-traded fund uses debt or derivatives to amplify or increase the returns of a commodity index. Leverage refers to increasing exposure to an asset without increasing investor outlays. Leveraged and inverse commodity ETFs are generally, but not always, identified by a 2x, 3x, or similar multiplier in their name. You might also see them with “bear” or “bull” in their names, which refer to the investor’s outlook on the index. An investor with a bullish outlook expects the index to rise, while one with a bearish outlook expects the index to drop. An inverse commodity ETF is designed in a way that inverts the returns on the index it tracks. Inverse ETFs attempt to turn an index value decrease into an increase in returns. For example, the Direxion Daily Energy Bull 2X Shares ETF (ERX) is a leveraged fund based on the Energy Select Sector Index (IXETR)—note the bull reference—that attempts to deliver two times the return of the index. So, if the index rose five points, the ETF theoretically would return the equivalent of a 10-point increase. The Direxion Daily Energy Bear 2X Shares ETF (ERY) is the inverse of ERX—note the “bear” reference. ERY attempts to turn a drop in the Energy Select Sector Index into returns that equal two times the inverse of the drop. For instance, if the index dropped five points, the ETF would theoretically return the equivalent of a 10-point increase.
Types of Leveraged and Inverse Commodity ETFs
There are several leveraged and inverse ETFs you can choose to swing or day trade. Here are a few that demonstrate these ETFs and the commodity sectors they represent.
Leveraged and Inverse Energy ETFs
These are based on an energy index comprised of the stocks of companies in the oil, gas & consumable fuels, and energy equipment services:
ERX - Direxion Daily Energy Bull 2X Shares ETFERY - Direxion Daily Energy Bear 2X Shares ETF
Leveraged and Inverse Oil ETFs
The list of leveraged and inverse oil ETFs is dwindling—there are only a few traded in the U.S.:
SCO - ProShares UltraShort Bloomberg Crude Oil (-2x)UCO - ProShares UltraShort Bloomberg Crude Oil (2x)
Leveraged and Inverse Natural Gas ETFs
ProShares is the only one to offer leverage and inverse natural gas ETFs:
BOIL – ProShares Ultra DJ UBS Natural Gas ETF (2x)KOLD – ProShares UltraShort DJ UBS Natural Gas ETF (-2x)
Leveraged and Inverse Gold ETFs
Leveraged and inverse gold ETFs are few in number as well:
DUST - Direxion Daily Gold Miners Bear 2x Shares ETFNUGT - Direxion Daily Gold Miners Bull 2x Shares ETFGLL - ProShares UltraShort Gold ETF (-2x)UGL - ProShares Ultra Gold ETF (2x)
Leveraged and Inverse Silver ETFs
There are only two leveraged and inverse silver ETFs:
AGQ - ProShares Ultra Silver ETF (2x) ZSL – ProShares UltraShort Silver ETF (-2x)
Leveraged and Inverse Materials ETFs
Leveraged and inverse materials ETFs are also hard to find, with only a few to choose from:
SMN – ProShares UltraShort Basic Materials ETF (-2x)UYM - ProShares UltraBasic Materials ETF (2x)
Should You Trade Inverse and Leveraged Commodity ETFs?
Leveraged and inverse ETF trading is an advanced strategy—not for novices. Additionally, you have no safety net because your brokerage isn’t legally obligated to step in and stop you if you’re making a risky trade. With many of these ETFs, the upside and downside are nearly limitless. Due to the risks involved, these instruments are under constant scrutiny from financial market regulators. Therefore, before making any trade, research all the funds you are considering for your portfolio. Conduct your due diligence, and be sure to consult your professional financial advisor unless you’re a very experienced trader. The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.
