What they are
A leveraged ETF aims to deliver a multiple, usually 2x or 3x, of an index's return for a single day. If the Nasdaq 100 rises 1% today, TQQQ aims to rise about 3%. If it falls 1%, TQQQ falls about 3%. Funds use swaps and futures to get the extra exposure.
The daily reset
Because the fund resets its leverage every day, its return over a longer period is not 3x the index's return. It depends on the path the index took.
| Day | Index | Index value | 3x fund value |
|---|---|---|---|
| Start | 100 | 100 | |
| 1 | +10% | 110 | 130 |
| 2 | -9.09% | 100 | 94.5 |
The index is back where it started. The 3x fund lost 5.5%. This is Volatility decay.
When they work and when they fail
- Steady uptrend, low volatility: returns can exceed 3x the index.
- Choppy, sideways market: the fund slowly bleeds value.
- Sharp decline: losses compound, and recovery needs enormous gains. See Maximum drawdown.
Historical drawdowns
| Fund | Event | Approximate fall |
|---|---|---|
| TQQQ | Feb to Mar 2020 | About -70% |
| TQQQ | 2021 to 2022 | About -80% |
| UPRO | Feb to Mar 2020 | About -75% |
| Simulated 3x Nasdaq | 2000 to 2002 | Over -99% |
Costs
Expense ratios near 1%, plus the cost of borrowing built into the swaps, which rises with interest rates. See Expense ratios and fund fees.
Using them carefully
Size positions small (Position sizing), have a rule for when to reduce risk, and read the strategy pages in this section before building anything with them.
Questions
Can a 3x ETF go to zero?
A one-day index fall of 33% would wipe out a 3x fund. Circuit breakers make that unlikely, but losses of 80 to 95% have happened.
Should I hold leveraged ETFs long term?
Only with a clear plan, a small position size and an understanding of volatility decay. They can compound well in steady uptrends and very badly in choppy or falling markets.
See also
- Volatility decay What volatility decay (beta slippage) is, why leveraged ETFs lose value in choppy markets, a worked example, and the formula that estimates the drag.
- Inverse ETFs How inverse ETFs like SH and SQQQ aim to rise when markets fall, why they decay over time, and why they are poor long-term hedges.
- Maximum drawdown What maximum drawdown is, how to calculate it, why losses need bigger gains to recover, and historical drawdowns for stocks and leveraged funds.
- Leveraged strategies compared A side-by-side comparison of six leveraged ETF strategies, 3 Sig, 6 Sig, 9 Sig, TQQQ FTLT, Holy Grail and HFEA, by holdings, signals, results and risk.
Pages that link here: Expense ratios and fund fees, Investing FAQ, Kurtosis and fat tails, Position sizing, What is an ETF?
Last updated September 30, 2026. Education only, not investment advice.