Returns & Compounding Calculators

Leveraged ETF Negative Compounding Simulator

Simulate for yourself why 2x and 3x leveraged ETFs lose money in a sideways market.

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Leveraged ETF Negative Compounding Simulator

Enter your values and press Simulate

Leveraged ETF return

What if it rises 10% and falls 10% over and over?

When the underlying index repeats +10% one day and −10% the next (10 days)

The principle

Why do you lose money when the index goes nowhere?

A leveraged ETF tracks 2x or 3x the daily return. Because it is reset every day, losses build up when prices keep going up and down. This is called volatility drag.

Choose a scenario
Pick sideways, rising or falling, or enter the trend and volatility yourself.
Path simulation
It generates a random path of daily returns and plots the underlying index and the leveraged ETF together.
Repeat 1,000 times
It repeats the same conditions 1,000 times and shows the probability of loss and the median.

Long-term expected return ≈ L × μ − (L² − L) × σ² / 2 − expense ratio

L is the leverage multiple, μ is the underlying index trend and σ is volatility. A 3x ETF bears a cost of (9 − 3)/2 = 3 times the variance. With 25% volatility, that means about 19 percentage points a year disappear to drag. Real ETFs also have swap and financing costs, so results can be even worse.

FAQ

Should leveraged ETFs never be held long term?

If a strong uptrend continues, holding long term can return more than the multiple of the underlying index. But in a sideways market or during high volatility, you can lose heavily even when the underlying index goes nowhere, so you need to understand the risks before you approach them.

Do Korean leveraged ETFs work the same way?

Yes. Korean leveraged and inverse ETFs also track a multiple of the daily return. In Korea, buying leveraged ETFs requires completing prior training and meeting a minimum deposit requirement.

Are the simulation results the same as reality?

No. They are random paths that assume a normal distribution, so sharp crashes and spikes in the real market (tail risk) are under-represented. Use the tool to understand the structure.

Results are estimates based on your inputs and simplified assumptions, and are for reference only, not a basis for investment decisions.