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Sandeep Rao

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Leveraged Trading in 2020: A Quick Review

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

2020 has been an interesting year: we watched the unforeseen effects of the pandemic play out on the markets along with the rise of dark horse stocks (such as Tesla). Adding to the confusion was the long-overdue correction in markets due to concerns that certain tech companies were overvalued. Effective comparison of trends requires a reference point: we choose 2019 as that point in time.

Markets vs Margin Balances

To establish an indicator of investor preferences, we consider the debit and free credit balances in customers’ margin accounts as reported by FINRA. The Financial Industry Regulatory Authority (FINRA) is an independent organization that writes and enforces the rules governing registered broker-dealer firms in the United States.

  • Debit balance in a margin account is the total owed by a customer to a broker (for funds borrowed to purchase securities);
  • Free credit balance takes into account all transactions and margin requirements (this is the amount of capital available for withdrawal).

The market being considered is the S&P 500, specifically its monthly delta (i.e. the percentage rise/fall in a calendar month).

The market being considered is the S&P 500, specifically its monthly delta (i.e. the percentage rise/fall in a calendar month).

In 2019, a fairly typical picture of the trends in balances versus the market can be seen:
Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
It is evident that investors – on average – remain substantially invested in the market (as seen by the near-constant levels in credit balance) while the debit balance is largely in trend with market rise and falls.

In 2020, the landscape seen was as follows:
The first few months of the year saw the pandemic take its toll on the market. This led to investors accumulating dry powder in their credit balances during these months, which subsequently reduced as the market began to boom from April till June 2020. Debit balances showed a similar but opposite trend in these initial months.

The market correction in September, however, showed that while credit balances increased slightly, debit balances also rose. This duality is likely the result of multiple factors at play: more investors having entered the market (using margin) and existing investors remaining on the sidelines, observing the choppy markets playing out.

Short & Leveraged (S&L) ETPs in 2020

In 2020, investments into S&L ETPs reached an all-time high, surpassing $85 billion in assets under management. Equities-based ETPs maintained 88% of all investments while debt-based ETPs experienced the largest relative decline (see below).
Despite a rise in overall investments, the number of ETPs in the market has shrunk by nearly 18% year-on-year.
This is attributable to two factors:

  • Closures of debt-based ETPs that failed to gain popularity and commodity-based ETPs in the aftermath of the oil market crash in March 2020;
  • The continued longevity of prominent ETPs in the equities space.

Leverage Trends for Equities in 2020

Taking a two-year view, i.e. from Jan 2019 through Dec 2020, the net investment and leverage trends in equities reveals the following picture:
Since the start of 2019 until March 2020, there had been a trending decrease in both net positions in leveraged ETPs as well as the amount of leverage used. However, once markets began to recover, so did the aforementioned criteria – hindered only by the market correction in Q4 of 2020. The net leverage has now improved to pre-2019 levels while net positions have risen by over 28% since the start of the year and have now surpassed pre-2019 levels.

However, analysing net flows into equities-based ETPs (i.e. new money coming in minus money going out) adds an additional layer of complexity to the analysis:
Given the increased investments into equities-based ETPs but with a decrease in net position, it can be estimated that investors in 2020 strongly favoured short ETPs, typically in the -1x to -3x range, over long leveraged ETPs, in the 2x to 3x range (or more). This is supported by the net increase inflow into short ETPs.

In short, a significant proportion of investors have shifted their perception (and funds) towards a bearish market scenario as 2020 ended with no clear trend in either direction. Nonetheless, the trends do not seem to signify a “flight” of funds from leveraged ETPs into short ETPs (as of yet).

In Conclusion

While investors remain committed to the stock market, there is some indication that they are somewhat ambivalent on the direction it will take. Given the current market landscape, ETPs are gaining ever-increasing traction as a viable component of portfolios for making tactical gains.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

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Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

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Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.